The euro has broken out of its yearlong bear channel, but that doesn’t necessarily mean a bull phase has begun, writes Al Brooks.

The EURUSD weekly Forex chart has rallied for six weeks and is now above the 20-week exponential moving average. The lack of consecutive strong bull trend bars makes the rally more likely a leg in a trading range than the start of a bull trend.

The EURUSD weekly chart has had two big bull trend bars in the past four weeks. Both closed above the 20-week exponential moving average, and they are the first closes above that level since September. However, there is no follow-through (see chart below). Where are consecutive big bull trend bars?

EURUSD Forex wedge bear flag but in trading range

If this rally is the start of a bull trend, the bulls should be able to control the market for more than one week at a time. Because they have not, this rally is more likely a bull leg in a trading range.

End of bear trend does not make a bull trend

Yes, the rally might have ended the yearlong bear channel, but that does not mean that there is now a bull trend. Instead, this rally is behaving like a leg in a trading range.

Trading ranges have legs that go up and they alternate with legs that go down. If the bulls are unable to get a strong bull bar within the next two weeks, the weekly chart will likely go sideways to down for a few weeks.

If so, the bulls will want the pullback to hold above the 20-week exponential moving average. That was resistance for a year. The bulls hope it is now support. If so, the rally will resume up to test the major lower highs of the past year.

The bulls want the rally to continue up to the start of the bear channel. That is the Sept. 24 high at around 1.18. It took eight months to fall from there to the April low. If it gets back there, it will probably take several months. This is especially true given the lack of consecutive big bull trend bars on the weekly chart.

Possible small wedge rally

The month-long rally began with a small bull bar that closed on May 24. The second leg up was two weeks later. Last week might be the start of a small third leg up. Three legs up are often a wedge rally, which is a buy climax. If so, it often leads to a couple legs sideways to down.

This week might be the end of a third week up. The March 20 major lower high of 1.1448 is just above. The rally might have to get there before the bulls will take profits.

But will the bears sell aggressively enough to resume the bear trend? At the moment, a sideways to down leg in a trading range and then a resumption of the rally is more likely. At a minimum, the rally will probably reach the Jan. 10 lower high at 1.1570. That was the start of the most recent leg down and its high is therefore an important magnet above.

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