Take a Glance at Technical analysis: CADJPY forms bearish patterns at the peaks of rallies. Gravestone doji and shooting star pattern candlesticks have occurred at 82.636 and 82.663 levels.
Consequently, the current price slid way below DMAs with bearish crossovers, ever since the formation of these bearish patterns at stiff resistance of 82.624 levels (refer daily chart). Furthermore, both leading and lagging indicators signal the upcoming trend most likely to plummet prices way below 82 levels if it manages to breach below 82.088 levels.
Mild bullish rallies, for the day, seem to have been struggling for momentum. Extension of rallies seems unlikely as the technical indicators are in line with the bearish trend.
While 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’ favour.
Trade tips: Well, on trading perspective, at spot reference: 82.129 levels, contemplating above-stated bearish patterns, it is advisable to snap deceptive rallies and deploy tunnel spread options strategy using upper strikes at 82.204 and lower strikes at 81.970 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 is flashing at -81 (highly bearish), hourly JPY spot index was at -99 (highly bearish), while articulating (at 05:34 GMT).
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