The EUR/USD has been in a weak rally for 3 weeks within its tight trading range on the daily chart. It is testing the September 8 lower high. The bears want a double top lower high and a reversal down. The bulls want a breakout and a test of the August high, which is the top of the 7-month trading range. Since most attempts to break out of a trading range fail, the odds are that this one will as well, and that the EUR/USD will trade down again, beginning this week. This is especially true because the 60 minute chart is in a broad bull channel, which is the weakest form of bull trend.
The bulls do not yet have enough momentum to make traders believe that the rally is the start of a bull trend instead of just another bull leg within the trading range. The bulls can get a strong breakout at any time, but until traders see it, they know the odds are that the EUR/USD will reverse down this week and begin a bear leg in the trading range.
The USD/CAD began its oversold bounce yesterday. It broke well above the top of the 60 minute tight bear channel. The breakout was strong enough to make traders look for a 2nd leg up after the first attempt by the bears to resume the bear trend. This means that the bulls will probably be able to form a higher low major trend reversal buy setup this week. They will buy a pullback to a higher low (or, to a lower low, if the bears are able to create one). A major trend reversal has a 40% chance of a swing trade back up, creating a strong 2nd leg up. There is a 60% chance of either a small profit or loss for the bulls who buy the reversal up from a higher low.
The bears see this rally as a double top bear flag with the October 8 high on the 60-minute chart. Since the selling was so climactic, the odds are that there will be a 2nd leg in the correction up. That 2nd leg can be up, giving the bulls a swing trade, or sideways, creating a big triangle. It is too early to know which will form, but the odds are that there will be a test down and then an attempt at a 2nd leg up this week.
The bulls want a breakout above the double top and then a measured move up. If they get their buy setup, they then have a 40% chance of the head and shoulders bottom leading to a measured move up. Since the reward is several times greater than the risk, it more than offsets the low probability. This makes the trade mathematically sound.
The 1st leg up is still unfolding and there is no sign of a top yet. Bulls are continuing to hold long, but they will soon reduce their position size because the stop is getting too far away. When they do, their selling and the selling by the double top bears will probably result in a pullback later this week.