The EUR/USD forex market is in the middle of a 9-month trading range which should continue for at least a couple more months.
Within that range, there was a lower range from August through October, an upper range from November through February, a bear breakout in March, and a reversal up in April when it strongly broke back above the Jan. 1 price, which was the approximate bottom of the November to February range.
The bulls want the rally to continue up to above the top of that range (the Jan. 6 high). The 3 big bull bars closing on their highs make at least slightly higher prices likely next week.
This rally will probably stall in the November to February range, despite the 3 big bull bars closing on their highs.
As strong as the 3-week rally has been, as long as there aren't a couple of closes above the trading range, traders will continue to look for reversals every few weeks.
While the 3-week rally makes at least slightly higher prices likely this week, the EUR/USD will probably soon go sideways to down for a couple weeks.
The bears hope that the 3-week rally is just a bull leg in the bear channel that began on Jan. 6. They want a lower high, a break below the November 4 low at 1.16, and a measured move down to the March 2000 low at 1.06.
If the bears get a reversal within the next few weeks, there would be a lower high major trend reversal. There would also be a head and shoulders top. Even a good looking top would only have a 40% chance of a reversal down into a bear trend.
The bears would probably need a few sideways weeks before there could be a credible top.
- Most major reversals end up being minor, like a leg in a trading range. It is more likely that a selloff will just end up as a bear leg in the 9-month trading range.
- After 3 consecutive big bulls bull bars, the bears will need a micro double top before they can get more than a couple bars sideways to down.
- After 3 consecutive bull bars, the reversal will probably be minor. That means a couple weeks, and then another attempt back up.
- The most important point is that the weekly chart has been in a trading range for 9 months. The 3 big bull bars are not enough to make traders conclude that the trading range has ended, and the bull trend has resumed.
- Unless the bull get a couple closes above the Jan. 6 high at the top of the range, traders will expect the trading range to last at least a couple more months.