- The EUR/USD continues forming a tight trading range just above the moving average.
- The market is in breakout mode, and it is essential to realize that the probability is close to 50% for both the bulls and bears.
- The 20-period moving average (blue line) has not been touched in 34 bars which is extreme. This increases the odds that the market will have to reach the moving average soon before the market can go much higher.
- The bulls want today to be a bull inside bar closing on its high. They will see this as a triangle and try for an upside breakout.
- As I mentioned above, the market being 34 bars away from the moving average will limit the upside potential if the bulls break above the triangle (tight trading range, green box).
- There will likely be sellers above the Dec. 15 high if the market reaches it before touching the moving average.
- The bulls have a small pullback bull trend, and so far, even though the bears are preventing the market from going higher, the bulls are continuing to form negative gaps, which increase the odds of higher prices.
- On the weekly chart, the December rally is the first trendline break of the bear trend that began in 2021. Traders will likely want to see a retest of the October lows and a credible higher low major trend reversal.
- A credible retest does not mean the market has to reach the October low. It just means that the market needs to see how eager traders are to buy a test down.
- While the December rally is a strong enough reversal to lead to a second leg up, the pullback from the December rally can easily be 30-40% and test the Nov. 21 low.
- Overall, the market will likely pull back below the moving average soon. While the market may continue higher, the pullback will probably be deeper than the bulls want.
EUR/USD in a Breakout Mode
