- The EUR/USD formed a wedge top after reaching the measured move target (purple line) and reversed down, reaching the moving average.
- The breakout on January 3rd was enough of a surprise that the market will likely have a second leg down.
- Bulls hope that the January 3rd bear breakout is a second-leg trap that traps traders into a bad short at support (moving average). Next, they want the market to reverse up to a new high.
- More likely, the bear breakout on January 3rd will have a second leg down. This means there are probably more sellers above yesterday’s bull bar than buyers.
- Traders will pay close attention to see what happens back at the January 3rd close. If bears buy back shorts on a test of the January 3rd close, that would be a sign of weakness and increase the odds of going sideways. If bears sell more on a test of the January 3rd close, it will increase the odds of lower prices.
- Overall, the daily bull channel that began on November 21st is likely evolving into a trading range, which means that bears will probably get a couple of legs down.
EUR/USD: Second Leg Down Likely
