The EURUSD forex market is finally beginning to break above the tight trading range that it has been in for the past 8 weeks. I mentioned a few times that it might go sideways to the bear trend line before breaking out. Today, the pair is also beginning to break above the bear trend line.
If today remains a big bull day on the daily chart, then there will be a breakout. The more it closes on its high and the further it closes above the range and the bear trend line, the more likely a 2-month rally to the October or September highs is underway.
Even if today remains a strong bull day, traders will want to see a bull follow-through day tomorrow. If it is also a big bull day, there will be a 60% chance that the breakout will go up for at least a 200-pip measured move.
On the other hand, if we see either today or tomorrow reverse down strongly, traders will conclude that the breakout has failed. They will then look for a breakout below the range. But even if there is a breakout below, it will probably fail and reverse up within a few weeks.
A tight trading range late in a bear trend usually is the Final Bear Flag. Traders should then look for a reversal up that could last 2 or more months.
There has been subtle buying pressure in the tight trading range over the past few weeks. The tiny higher lows and highs slightly increase the chance of a bull breakout.
Remember, I have been saying that there is an increased chance of a trend reversal in early January. This might be it.
