FxWirePro: CAD/JPY hammer interrupts and shooting star develops head and shoulder pattern – Trade boundary strikes and short hedge

Take a Glance at Technical analysis: CADJPY forms shooting star and hanging man patterns at stiff resistance of 83.830 levels.

Shooting star occurred at 85.531 and the hanging man at 83.580 levels on daily terms that signal weakness, consequently, bulls, for the day, seem to have been exhausted. Extension of rallies is possible only upon break-out of the stiff resistance as the technical indicators are in line with the bullish trend.

On a broader perspective, the intermediate trend of this pair which is in the consolidation phase since December 2015 has now been forming head and shoulder chart pattern and above stated bearish engulfing pattern drag slumps to develop this pattern (refer weekly 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 then steep price slumps slide below EMAs.

But, hammer occurred again at 81.113 level which has evidenced the upswings up to EMAs. 

Ever since the formations of shooting star and bearish engulfing patterns at 84.120 and 82.819 levels respectively on weekly plotting, we witnessed steep slumps thereafter. From the last two weeks, bulls attempt to regain, as both the leading and lagging oscillators, on this timeframe, indicate buying momentum, bullish trend continuation and develops head and shoulder pattern.

Trade tips: Well, on trading perspective, at spot reference: 83.608 levels, contemplating above-stated bearish patterns, it is advisable to snap deceptive rallies and deploy boundary strike options strategy using upper strikes at 84.036 and lower strikes at 83.120 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 15 levels (which is mildly bullish), while hourly JPY spot index was at -92 (bearish) while articulating (at 07:29 GMT).

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