FxWirePro: CAD/JPY bulls exhausted upon shooting star and head & shoulder pattern – Trade boundary strikes and uphold short hedge

CADJPY’s recent bulls currently appear to be jittery upon the formations of bearish patterns.

Take a Glance at Technical analysis: The pair forms head and shoulder, shooting stars and hanging man patterns.

Shooting star and hanging man patterns have occurred at the stiff resistance of 83.981 levels (refer daily chart).

Shooting star occurred at 85.978 and the hanging man at 83.881 levels on daily terms that signal weakness, the similar patterns have occurred at the same juncture in the recent past as well.

As a result, bulls in the minor trend, seem to have been exhausted at the stiff resistance as the technical indicators are signaling overbought pressures. Hence, the extension of rallies is possible only upon break-out of the stiff resistance.

While 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 followed by big bearish candle pop-up at that juncture to hamper previous bullish momentum on this timeframe. 

Ever since the formations of these bearish patterns at 84.120 and 82.819 levels respectively on weekly plotting, we witnessed considerable slumps thereafter. From the last couple of days, bulls attempt to regain, but struggling for bullish momentum on this timeframe, the above-stated bearish pattern candles, and downtrend continuation develops head and shoulder pattern.

Trade tips: Well, on trading perspective, at spot reference: 83.757 levels, contemplating above technical rationale, it is advisable to deploy boundary strike options strategy using upper strikes at 83.981 and lower strikes at 83.3630 levels, the strategy is likely to fetch leveraged yields as long as the underlying spot FX remains between the above strikes on the expiration.

Alternatively, on hedging grounds, we advocated shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards 81.500 levels in the medium-term, we wish to uphold the same positions with a view of arresting further potential slumps.

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 92 levels (which is bullish), while hourly JPY spot index was at 42 (bullish) while articulating (at 05:23 GMT).

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