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USD/CAD: 60-Minute Sell Climax

Published 10/08/2015, 10:42 AM
Updated 07/09/2023, 06:31 AM

The EUR/USD and USD/JPY remain in extremely tight trading ranges on the daily charts. Day traders have been mostly scalping for 10 – 30 pips, and many of the 10 pip scalps are with limit orders and scaling in.

The most interesting chart is still the USD/CAD because it has had 5 strong days down to the bottom of a 3-month trading range. The probability is that it will bounce at the bottom of a range. Also, the selloff on the 60-minute chart has been in a tight bear channel that has lasted over 100 bars. When that happens, it is unsustainable, and therefore a type of sell climax. When there is a sell climax, the stop for the bears is far above. This means the risk is high. The computers need to reduce risk. They do this buy reducing the position size, which means they buy back part of their shorts. This usually results in a couple of legs sideways to up. The first leg up formed yesterday.

Day traders will decide today and tomorrow if the 2nd leg will be sideways or up. If it is sideways, the bulls are not strong. This would increase the chances of a bear breakout below the range. Since most trading range breakouts fail, the odds are that this one will fail as well, and at least bounce to resistance. There is always resistance in the middle of a trading range.

This creates the possibility of a rally to the middle of the range, which is 150 – 200 pips above the current price. The bulls want a major trend reversal on the 60 minute chart and then a rally. The day trading tip is to look for a candlestick pattern that is a buy setup today or tomorrow to enter early on a possible swing up for one to three days.

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A reversal often happens in the absence of a clear candlestick pattern. When it does, it comes in the form of a strong breakout. Day traders who are waiting for a great short-term bottom for a bounce should be prepared for a strong bull breakout without a clear candlestick pattern. If the breakout comes, day traders should be prepared to buy as the reversal up is unfolding.

There is always a bear case, especially when the selloff has been as strong as this one has on the 60-minute chart. It is possible that the selloff will go much lower before there is a pullback. Because it is at the bottom of the 3 month trading range, it is more likely a sell vacuum test of the support at the bottom of the range than the start of a successful bear breakout. There is maybe a 30% chance that the bears will win, and that this selloff will break strongly below the trading range without pulling back for many more days. If that is the case, and if the bears get a huge bear breakout, traders should not be in denial. They should short. The probability, however, favors a bounce for at least 2 – 3 days.

Latest comments

USDCAD movements are completely dependent on oil prices - anything else you look at short of employment number and interest rates do not matter. When oil goes up USDCAD goes down and . vica-versa.
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