The currency pair EUR/USD has been in a bearish trend recently, with the bears attempting to push for a second leg down after breaking below the moving average (blue line). However, as the market transitions into a trading range, the odds of a successful bearish trend reversal may be in jeopardy.
The Rally Undermines the Bearish Trend
The recent surge in the market may prompt profit-taking, potentially disrupting the ongoing bearish trend. The robustness of the rally indicates that the market is more likely to remain within a trading range rather than persist with a robust bearish trend. Consequently, it can be anticipated that bears will face challenges in establishing a secondary downward trend without a significant trend reversal.
The Need for a Major Lower High
A reversal of the bearish trend will be considered credible only if a major lower high is formed. This indicates that market sentiment has shifted, allowing the bears to gain control. Until such a reversal occurs, the bears are unlikely to push for a second leg down.
Low Probability of a Strong Second Leg Down
The formation of a major lower high prevents the bears from achieving a strong second leg down. This means that traders should be cautious when considering bearish positions, as the market may not support a sustained bearish trend.
Conclusion
The recent rally in EUR/USD undermines the bearish trend and increases the likelihood of the market settling into a trading range. The bears will need to wait for the formation of a major lower high before they can successfully push for a second leg down. Until then, traders should be cautious when considering bearish positions, as the probability of a sustained bearish trend is low.
