FxWirePro: CAD/JPY’s Interim Bulls Seem Deceptive, Major Downtrend Still Imminent On Head & Shoulder Pattern – Trade & Hedging Setup

CADJPY’s interim bulls, in the minor trend, appear to be exhausted at stiff resistance levels of 79.700 , the failure swings are driving the short-term trend in sideways from the last couple of days, any dip below 78.947 level (i.e. 21-DMA) and 78.500 area, is most likely to resume bearish trend (refer daily chart).

Ever since the uptrend line support is breached, bears have managed to plummet the prices well below DMAs constantly. Currently, as the bears attempt to nudge below 7DMAs (79.251) upon shooting star pattern.

While there is no change in our long-term outlook, the major downtrend remains intact.

On a broader perspective, the consolidation phase in the major trend now seems to be vulnerable (refer monthly chart), the major downtrend of this pair which has been in the consolidation phase since December 2015 has now been signalling weakness again upon breach below the neckline of head & shoulder pattern.

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 recommend trading this pair via boundary options using upper strikes at 77.855 and lower strikes at 76.789 levels. One can derive certain yields as long as the underlying spot FX remains between these two strikes on expiration (spot reference: 79.444 levels).

Alternatively, ahead of BoJ and BoC monetary policies that are scheduled for the next week, we advocate shorting futures contracts of mid-month tenors on hedging grounds, as the underlying spot FX likely to retest southwards at 75 levels in the medium terms. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.