– Last week rallied strongly from a failed breakout below a nine-week tight trading range. I have been saying for a couple months that the trading range would be a final bear flag and that a bear breakout would fail.
– I have also been saying that the EUR/USD should rally for at least a couple months. This is because the year-long bear trend is still in an eight-year trading range. It is, therefore, more likely a leg in the range than a resumption of the 15-year bear trend.
– A bear leg in a trading range usually leads to a bull leg. Since the bear leg has lasted a long time and reached support at the June 26, 2020, higher low, last week’s rally will probably be the start of a leg up. A leg up should last at least a couple months.
– The rally stalled at the Jan. 14 high. It could go sideways to down for a few weeks as traders decide between a reversal down from a double top and a break above the Jan. 14 high.
– The bears want a reversal down from a double top and then a measured move down below the January low.
– Today, so far, is a bull bar closing near its high. The bulls are trying again to break above the Jan. 14 high. They should be successful within the next few days, but there is a 40% chance that the pullback will correct 50% of last week’s rally before the bulls get their breakout.
– The bulls want a breakout above the double top and a measured move up to above 1.18. That is also around the Oct. 28 high, which was the start of the strong leg down. This is more likely than a breakout below the January low.
– But, what if Russia invades the Ukraine and Europe messes up the response? EUR/USD will quickly go down to the bottom of the eight-year range.
– At the moment, the chart is saying that if Russia invades, Europe will handle it well, and the crisis won’t be disastrous for EUR/USD.
