EUR/USD: Odds Slightly Favor A Breakout Below The 2-Month Trading Range
Al Brooks | Jan 26, 2022 09:38AM ET
EUR/USD has been drifting down in a tight bear channel since the Jan. 14 failed breakout above the 2-month trading range. This is the same bear channel the pair has been in since last year.
Currently, the pair is near the bottom of the 2-month range. We've seen lots of overlap over the past 5 days, but the bars are forming lower highs and lows, so it's bearish. While slightly more bearish than bullish because of the trend down for 2 weeks, it is barely better than 50-50 for the bears because it is still in the 2-month tight trading range. And until there is a breakout, there is no breakout.
Bears hope that the Jan. 14 high was simply a test of the Nov. 15 low, and that it formed another lower high in the yearlong bear channel. They want a measured move down from the Sept. 3 high to the Nov. 15 low. That would be a test of the June 19, 2020 low at the start of the 2020 bull channel. The bears want a breakout below that low and then a breakout below the 7-year trading range.
The bulls are hoping that the 2-month trading range will be the Final Bear Flag. Odds are that it will be, which means they expect a breakout below will fail within a few weeks. It would be unusual for the yearlong bear trend to reverse all of the 2020 strong rally without at least a bounce of a couple months.
That said, however, the early January rally is failing. The odds slightly favor a breakout below the 2-month trading range. But, there will probably be a reversal back up within a few weeks of the breakout. A tight trading range is a bad environment for traders looking for a trend. Traders are looking for reversals every few days, waiting for a strong breakout in either direction, or for a failed breakout.
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