FxWirePro: CAD/JPY bearish trade and hedging setup on failure swings at channel resistance, head and shoulder

Take a Glance at Technical analysis: CADJPY shooting star pattern pops up at the peaks of rallies or channel resistance. 

Consequently, the current price slid way below 7DMAs at recent lows of 82.029 levels, although the mild rallies are observed but likely to be restrained at stiff resistance of 82.624 levels (refer daily chart). 

Furthermore, the leading indicator (fast stochastic curve) is signaling to hamper momentum in the uptrend as it entered in the overbought pressures, while open interest curve is also sliding with dipping volumes on rising prices.

Hence, one shouldn’t be surprised if it plummets prices way below 81.500 levels if it manages to breach below 82.478 levels. 

We reiterate mild bullish rallies, for the day, have been struggling for momentum. Extension of rallies seems unlikely as it failed to breakout 82.624 levels.

While on a broader perspective, the major downtrend of this pair which has been in the consolidation phase since December 2015 has now been signaling weakness again upon the formation of head and shoulder pattern and above stated bearish engulfing pattern drag slumps to develop this pattern (refer monthly plotting).

Head at 91.638, left shoulder at 88.922 and right shoulder at 87.851 levels. Shooting star pattern pops-up at that juncture hampers previous bullish momentum on this timeframe. 

Ever since the formations of shooting star and bearish engulfing patterns at 84.120 and 82.819 levels respectively on monthly plotting, we witnessed steep slumps thereafter. Overall, the major trend seems to be weaker both momentum oscillators (RSI & Stochastic curves) and bearish EMA & MACD crossovers are in bears’ favor.

Trade tips: Well, on trading perspective, at spot reference: 82.653 levels, contemplating above-stated bearish patterns, it is advisable to snap deceptive rallies and deploy tunnel spread options strategy using upper strikes at 82.720 and lower strikes at 82.478 levels, the strategy is likely to fetch leveraged yields as long as the underlying spot FX keeps dipping on 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 80.544 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 -81 levels (which is highly bearish), JPY is at -99 (bearish), while articulating (at 07:03 GMT). 

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