FxWirePro: Hammer pops-up at CAD/JPY neckline of head and shoulder pattern – Trade double touch call and maintain short hedge

Take a Glance at Technical analysis: CADJPYforms bearish engulfing pattern at 85.025 and 81.741 levels on daily and weekly terms that nudges price towards DMAs and EMAs respectively. Ever since the formations of bearish engulfing and shooting star patterns at 85.025 and 87.851 levels on daily and weekly plotting, we witnessed steep slumps thereafter. But for now, bulls have countered with the hammer patterns at 79.823 and 81.113 on daily and weekly terms respectively, while both leading and lagging oscillators in tandem with bullish swings that indicates interim bullish momentum. 

The stiff resistance zone is observed at 82.4710 and 82.7373 levels (21-DMAs and 7-EMAs), the current price still remains well below these moving averages despite prevailing rallies.

On a broader perspective, the intermediate trend of this pair which is in 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. In contrast, hammer pattern pops-up at neckline that develops bullish sentiment. 

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

While on daily terms, these leading oscillators (RSI & stochastic curves) are showingupward convergence to the ongoing rallies that indicate strength and momentum in the minor uptrend, hence, 

Trade tips: Well, on trading perspective, at spot reference: 82.257 levels, contemplating above-stated technical rationale, it is advisable to deploy double touch call option strategy using upper strikes at 82.4710, the strategy is likely to fetch leveraged yields as long as the underlying spot FX keeps rising 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 -77 levels (which is bearish), while hourly JPY spot index was at 89 (bullish) while articulating (at 06:21 GMT).

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