FxWirePro: CAD/JPY flurry of bearish patterns at or near channel resistance signal weakness, major downtrend to prevail

CADJPY’s flurry of bearish patterns plummet the prices below 7DMAs, long-legged doji has occurred at 82.910, hanging man at 83.004, shooting star at 82.700, and back-to-back gravestone dojis at 82.709 and 82.697 levels that have signaled weakness of this pair.

The minor trend appears to be edgy on the overbought pressures and the failure swings upon these bearish patterns at the stiff resistance, consequently, bears bring swings back in the channel.

Although the pair showed channel break-out, we explicitly stated that it was still unsure whether true/false break-out as the minor trend was still struggling for the momentum as the leading oscillators entered in the overbought territory (refer daily chart).

While there is no change in our long-term outlook, the major downtrend remains intact. 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, upon above technical rationale we alter our trading perspective, at spot reference: 82.534 levels, contemplating above technical rationale, it is advisable to participate in intraday rallies as well as not disregarding major downtrend, we now deploy boundary options strategy using upper strikes at 82.686 and lower strikes at 82.305 levels, the strategy is likely to fetch leveraged yields as long as the underlying spot FX remains between these two 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 80.500 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.