FxWirePro: CAD/JPY bears prove more potential in head and shoulder patterns – Trade tunnel spreads and uphold short hedges

Take a Glance at Technical analysis: CADJPY has slid way below DMAs ever since the formation of hanging man and bearish engulfing patterns at stiff resistance of 82.571 levels.

Hanging man patterns have occurred at 82.459, 82.479 and at 82.557 levels, the bearish engulfing pattern has occurred at 82.293 levels on daily terms that have plummeted prices way below 7 & 21-DMAs. 

Mild bullish rallies, for the day, seem to have been struggling for momentum. Extension of rallies seems most unlikely as the technical indicators are in line with the bearish trend.

While on a broader perspective, the intermediate trend of this pair which was in the consolidation phase since December 2015 has now been signaling weakness again upon the formation of the head and shoulder 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.

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. 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: 81.347 levels, contemplating above-stated bearish patterns, it is advisable to snap deceptive rallies and deploy tunnel spread options strategy using upper strikes at 81.420 and lower strikes at 81.257 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 -114 levels (which is highly bearish), while hourly JPY spot index was at 95 (bullish) while articulating (at 06:17 GMT). 

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