FxWirePro: CAD/JPY Bears’ Hang-Over on Hanging Man Formations – Trade Tunnel Spreads But Short Hedge as Major Consolidation Phase Edgy at 21-EMAs

Take a Glance at Technical analysis: CADJPY has been sliding further below 7-DMAs ever since the formation of hanging man and bearish engulfing patterns at peaks of rallies.

Bearish engulfing at 82.758 and 82.456 levels on daily and weekly terms respectively.

While hanging man patterns have occurred at 83.879, 83.670 and 83.740 levels that have nudged the price way below 7-DMAs. Consequently, we witnessed steep slumps thereafter. But for now, bulls are attempting counter with the hammer on daily terms, but both leading and lagging oscillators are still in tandem with bearish swings that indicates interim bullish sentiments can be deceptive. 

On a broader perspective, the intermediate trend of this pair which is in the consolidation phase since December 2015 has formed head and shoulder pattern (refer weekly plotting).

Head at 91.638, left shoulder at 88.922 and right shoulder at 87.851 levels. In contrast, hammer pattern pops-up at the neckline that develops bullish sentiment, but the above-stated bearish engulfing pattern has restrained uptrend below 21-EMAs and drags slumps towards 7-EMAs. 

Momentum study: On daily terms, RSI and Stochastic curves show downward convergence entering into the oversold zone that indicates the bearish momentum. 

Trend study: Bearish DMA, EMA & MACD crossovers have been observed on both timeframes to indicate downswings to prolong further.

Trade tips: Well, on trading perspective, at spot reference: 82.475 levels, contemplating above-stated technical rationale, it is advisable to deploy tunnel spread option strategy using upper strikes at 82.5850 and lower strikes at 82.268 levels, the strategy is likely to fetch leveraged yields as long as the underlying spot FX keeps dipping but remains above lower strikes on the expiration.

Alternatively, on hedging grounds, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards 80.500 levels in the near terms.

Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.

Currency Strength Index: FxWirePro's hourly CAD spot index is inching towards -3 levels (which is neutral), while hourly JPY spot index was at 82 (bullish) while articulating (at 08:21 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex