- The EUR/USD got a big downside breakout on Tuesday following a wedge top.
- As expected, the follow-through after Tuesday’s bear breakout was bad. This is a reminder that Tuesday’s breakout is likely a breakout within a trading range that will lead to disappointment and sideways trading.
- Remember, 90% of breakouts are part of a trading range/channel, which means they often get a 2nd or 3rd leg and reverse.
- There are trapped bulls who bought during Tuesday’s selloff and got trapped by this breakout bar. The market is deciding how eager those trapped bulls are to exit.
- If the bulls rush to exit, they will look to sell above yesterday’s high, and the market will get a 2nd leg down. If today does not pullback much and continues to get bigger, more and more bulls may decide that the downside is limited, and some will buy more below yesterday.
- The bears want today to lead to a failed breakout of yesterday’s high and reverse, going outside down with yesterday’s bar. The problem with that is even if yesterday goes outside down, closing on its low; traders will probably look to buy below yesterday as well.
- At the moment, the odds are Tuesday is a big enough bear breakout to get at least a small 2nd leg down. However, since the market is in a trading range, traders must wonder whether Tuesday is a bear trap.
- One scenario is that the market forms a micro double bottom and get an upside breakout of the neckline (March 7th). If the breakout above the neckline is strong, the market might get a measured move of the past nine days, projecting up to around 1.0843.
EUR/USD Bulls Want a Double Bottom
