EUR/USD - Sweeping the highs, retracement following?The EUR/USD has experienced a steep and aggressive bullish run today, showing strong upward momentum across multiple timeframes. This impulsive move has led to a sweep of the recent highs, taking out key liquidity levels that were resting above previous swing points. In the context of smart money concepts and institutional trading models, such a move typically signifies the activation of buy-side liquidity, where stop-loss orders and breakout entries are triggered above a well-defined high. This behavior is often engineered by larger market participants to fulfill liquidity objectives before potentially reversing or retracing.
During this strong bullish leg, the EUR/USD left behind a noticeable imbalance, commonly referred to as a Fair Value Gap (FVG), on the lower timeframes. This imbalance reflects an area where price moved too rapidly, leaving behind unfilled orders and creating a price inefficiency. Specifically, an FVG remains open around the 1.13700 level, a zone that was bypassed during the impulsive rally and now stands as a likely magnet for price in the near term. These imbalances are significant because price tends to revisit them to seek equilibrium and fill in the inefficient areas, especially after a major liquidity grab.
The sweep of the highs was a classic liquidity-taking event. When price runs above a prominent high, especially one that's visible on higher timeframes like the 4H or daily, it often signals that buy stops (retail breakout entries or protective stops) have been targeted. Once these stops are taken, there is typically a shift in market behavior. The aggressive buyers have been filled, and institutional players may look to reverse or retrace price toward areas of unfilled orders, such as the aforementioned FVG. The market often transitions from a state of expansion (impulse move) to a state of rebalancing or consolidation, which opens the door for a pullback.
Given that the liquidity above the highs has been taken and that the 1.13700 gap remains unmitigated, it becomes increasingly likely that EUR/USD will begin a retracement. This corrective move would serve to rebalance the price, revisit the inefficiency, and potentially test the validity of any newly-formed demand zones. From a technical standpoint, this area is crucial, not only because of the gap itself but also due to its positioning in relation to prior market structure.
In summary, today’s bullish extension in EUR/USD accomplished a major liquidity objective by sweeping the highs. However, the move left behind a significant imbalance at 1.13700, suggesting that the pair could be due for a corrective pullback to fill the gap. Traders should monitor lower timeframes for signs of distribution, potential shifts in market structure, or bearish order blocks forming after the sweep. All of these could provide clues that the market is preparing to return to the gap and restore price efficiency.
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