The financial markets had strong moves after Thursday’s FOMC report, but the Forex markets remain in trading ranges. Until there is a breakout up or down, every strong move is a leg within the trading range and it will likely not last more than a day or two. The EUR/USD sold off overnight and it has been in a tight channel. A bear channel has a 75% chance of a bull breakout and a 25% chance of an acceleration down with a bear breakout. The channel has gone one for about 50 bars, which is a long time. The odds are that it will evolve into a trading range this morning, and then it will decide between trend resumption up and trend reversal down. Until the trading range grows to more than 20 bars, the odds favor the bear breakout. After that, the probability gets close to 50% for the bulls and bears. The EUR/CAD has already broken above its bear channel and the rally over the past hour will probably be the start of the trading range.
The overnight rally on the 5-minute chart of the USD/JPY has turned sideways for an hour. On the 60-minute chart, it is a 2nd leg up in a trading range that has lasted for a month. The bulls see it as a breakout above the triangle on the daily chart, but until there is a strong breakout with follow-through, it is more likely going to fail and the trading range will continue. There is no clear top yet on the 5-minute chart, but a trading range and is more likely today than a strong bull trend. If it continues the overnight bull trend, the rally will probably soon evolve into a trading range.
Last week’s strong reversal up from the bear breakout on the daily chart of the USD/CAD has the market back in its month long trading range. There is room to go before it might form a wedge bear flag. The top of the first leg was the September 17 high, and the top of the 2nd leg was Friday’s high. Typically, traders then look for 2 legs sideways to down, but since the daily chart is already in a trading range, the rally is likely to not go much further, even without the wedge bear flag.