The bears broke below the two-month tight trading range last week. The bear breakout is a surprise and strong enough for at least a second leg sideways to down. But, they failed to get follow-though last Friday, and instead, the following thought was a doji. This is a sign of weakness and increases the odds more sideways trading is in store for EUR/USD than down.
Bears need to target the 200-pip measured move down and the bottom of the bear channel from last year (about 100 pips lower). The channel down from Jan. 14 is tight, so the first reversal up is likely to be minor. In their view, the two months sideways to up trading from December to January 2022 was enough to relieve any prior exhaustion from the selloff in November 2021. Traders, however, will likely see the two months of sideways trading as a final bear flag.
Bulls will need to create enough buying pressure, such as a double bottom or strong consecutive bull bars, to convince traders that the market is going higher. At this moment, the odds are 40% or less that the market will continue down to the 2020 lows.
