The euro and yen continued to have small ranges and day traders will continue to look for 10 – 20 pips scalps. If there is a strong breakout up or down, they will try to swing trade for 50 pips. The most interesting Forex cross today is the USD/CAD. It has been in a tight bear channel for 4 days on the 60-minute chart and this is a sell climax. It is also near the bottom of the 2 month trading range. The odds favor a bottom today or tomorrow and then a rally for at least a couple of days. A 50% retracement would be about 150 pips. The rally last night broke above the bear channel. If the rally becomes much stronger, bulls will buy as it goes up. More likely, it will have to test down. When it does, day traders will look to buy the reversal up, expecting a test of last week’s trading range around 1.3250, which is more than 100 pips above the current price. If last night’s rally is followed by a new low, the bulls will buy the reversal up, and they might be able to swing trade for 150 pips.
Although the 4-day selloff can be the start of a bear trend, most trading range breakout attempts fail. This means that this selloff will most likely bounce off the support at the bottom of the 2 month trading range than break strongly below it. Day traders should begin to look to buy either pullbacks or a strong bull breakout.
If the bears win and this 4-day selloff is the start of a bear breakout below the trading range, the odds would then favor a measured move down, which would be about 400+ pips. The odds are against the bears, but if the breakout happens, traders should not be in denial and instead they should sell.