The weekly charts of the EUR/USD and USD/JPY have been in tight trading ranges for months and are in breakout mode. The markets are evenly balanced, and there is a 50% chance of the breakout being up or down. Once it comes, there is a 50% chance that it will reverse. Until then, ever strong move up or down will continue to last for only a few days. Day traders are looking to sell every rally on the 60-minute chart and buy every sell off. On the 5-minute chart, they are scalping with limit orders, selling above highs and buying below lows. They are scaling in and scalping for 10 – 30 pips.
The USD/CAD has the best potential for a swing trade (a move of at least 100 pips) within the next week because it has been in a 600 pip long tight bear channel on the 60-minute chart. This is a type of sell climax, and the odds are that it will soon be followed by a two legged move up, and the move will probably retrace at least a third of the bear trend. The targets for the bulls are the major lower highs in the 60-minute bear trend. The obvious ones are around 1.31, which is about 150 pips above the current price. The stops for the bears are now very far above. They need to reduce risk, and the easiest way to do that is to buy back some of their position.
The bulls know that and are looking to buy as well, expecting the rally to last at least a few days. They have a potential double bottom on the 60-minute chart. The bears see it as a potential bear flag. Whether or not the bears get one more push down, the odds of a short-covering rally this week are probably 60%, and bulls who trade the markets for a living will be looking for a candlestick pattern or a strong bull breakout to buy.
Traders learning how to trade the markets should realize that when a bear channel is tight like this, the bears are strong. After they buy back their shorts, the odds are that they will sell again. The first attempt by the bulls, even if it results in a rally that lasts 300 pips, will probably be followed at least by a test back down, and possibly by a resumption of the 60-minute bear trend.