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EURUSD Pullback Into the Trading Range

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Market Overview: EURUSD Forex

The market formed a EURUSD pullback into the trading range in a 4-bar bear microchannel on the weekly chart. If the market trades higher, the bears expect at least a small second leg sideways to down to retest the May 12 low. The bulls see the current move as a 50% pullback of the move which started from the March 27 low.

EURUSD Forex market

The Weekly EURUSD chart

EURUSD Weekly - Failed Breakout Bulls Want Retest High, EURUSD Pullback Into the Trading Range
  • This week’s candlestick on the weekly EURUSD Forex chart was a bear bar closing around the middle of its range with prominent tails.
  • Last week, we said traders would see if the bears could create more follow-through selling over the next few weeks, or if the pullback phase would lack strong follow-through selling, remaining shallow and mostly trading sideways with long tails below candlesticks or bull bodies instead.
  • The bears got another follow-through bear bar trading back into the trading range, but it was not a strong candlestick.
  • They see the rally to April 21 high as a large 2-legged bull leg and a buy vacuum test of the trading range high.
  • They want a failed breakout followed by a retest of the middle of the trading range (around the 20-week EMA).
  • They got a reversal from a wedge pattern (Apr 3, Apr 11, and Apr 21).
  • The move down is in the form of a 4-bar bear microchannel. That means persistent selling.
  • If the market trades higher, they expect at least a small second leg sideways to down to retest the May 12 low.
  • They must create more follow-through selling to increase the odds of the bear leg beginning.
  • The bulls want a retest of the April 21 high, followed by a strong breakout and a measured move based on the height of the trading range. That would take the market to the 2021 high area.
  • They see the current move as a 50% pullback of the move which started from the March 27 low.
  • They want the pullback to be weak, sideways, and lacking in follow-through selling (overlapping candlesticks, doji(s), bull bars, long tails below candlesticks).
  • If the market trades lower, they want the 20-week EMA to act as support.
  • They must create strong bull bars to show they are back in control.
  • The move up (Feb 28 low to Apr 21 high) was in a tight bull channel with big bull bars.
  • The current pullback from April 21 high to May 12 low, while persistent, is relatively weaker than the leg up before it (Mar 27 low to Apr 21 high).
  • Most breakouts from trading ranges fail. Markets have inertia and tend to continue what they have been doing.
  • That means trading ranges (and trends) are resistant to change and tend to continue.
  • If the bears can create strong consecutive bear bars back into the trading range, the odds of a failed breakout and the bear leg to retest the trading range low will increase.
  • The bulls must create a strong retest and breakout above the April 21 high with sustained follow-through buying to increase the odds of a successful breakout.
  • If the market trades higher, but is weak and forms a lower high (April 21), the odds of a lower high major trend reversal and a second leg sideways to down will increase.
  • For now, traders will see if the bears can create more follow-through selling, testing the middle of the trading range (around the 20-week EMA).
  • Or will the market start to stall and form a retest of the April 21 high over the next few weeks, even if it only forms a lower high?

The Daily EURUSD chart

EURUSD Daily - Failed Breakout Bulls Want Retest High
  • The EURUSD traded lower on Monday, but there was no follow-through selling. The market then traded sideways to up but stalled below the 20-day EMA. Friday traded lower but closed with a prominent tail below.
  • Last week, we said traders would see if the bears could create strong consecutive bear bars trading back into the trading range and below the 20-day EMA, or if the pullback would be weak and sideways instead.
  • So far, the pullback appears to be persistent, and the market is trading below the 20-day EMA.       
  • The bulls want a retest of the April 21 high, followed by a strong breakout and a measured move based on the height of the trading range. That would take the market to near the 2021 high area.
  • They want the 20-day EMA or the bull trend line to be areas of support.
  • They want a reversal from a wedge bull flag (Apr 23, May 1, and May 12).
  • They must create strong consecutive bull bars to show they are back in control.
  • The bears see the rally to April 21 high as a large 2-legged bull leg and a buy vacuum test of the trading range high.
  • They want a failed breakout followed by a retest of the middle of the trading range.
  • They got a reversal from a wedge pattern (Mar 18, Apr 3, and Apr 21) and a final flag.
  • If the market trades higher, they want it to form a lower high major trend reversal and a double top with the April 21 high.
  • They expect to get at least a small second leg sideways to down to retest the current leg extreme low (now May 12 low).
  • The move from the February 28 low was strong, with big consecutive bull bars.
  • The move could still be a bull leg and a buy vacuum within the trading range.
  • The pullback, which started from the April 21 high, while moderate in strength (has overlapping ranges), is persistent.
  • Markets have inertia, and odds slightly favor the trading range to continue.
  • For now, traders will see if the bears can create more bear bars, testing the middle of the trading range.
  • Or will the market begin to stall, forming a retest of the April 21 high within the next few weeks, even if it only forms a lower high?

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