FxWirePro: CAD/JPY’s counter punch of Gravestone Doji to hammer – Bid one-touch put and short hedge on potential head and shoulder pattern

CADJPY forms gravestone doji pattern at 85.969 levels that nudges price towards DMAs on monthly plotting. The same bearish pattern has countered hammer at 85.993 on daily terms. 

The stiff resistance zone is observed at 86.883 levels, while both momentum oscillators and lagging indicators on daily terms have been in bears’ favor.

RSI and Stochastic curves show downward convergence entering into oversold zone that indicates the bearish momentum. 

On a broader perspective, the major downtrend of this pair which is in consolidation phase since December 2015 has now been forming head and shoulder chart 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.

While leading oscillators (RSI & stochastic curves) are popping-up with overbought pressures, hence, it is wise to snap rallies so as to provide a better entry level for the fresh short trades. 

Trade tips: Well, on trading perspective, at spot reference: 85.555 levels, contemplating above-stated bearish patterns, it is advisable to trade one touch put option strategy using strikes at 85.365, the strategy is likely to fetch leveraged yields as long as underlying spot FX keeps dipping on the expiry duration.

Alternatively, on hedging grounds, we advocate shorting futures contracts of mid-month tenors as the underlying spot FX likely to target southwards 84.000 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 56 levels (which is bullish), while hourly JPY spot index was at 90 (bullish) while articulating (at 06:24 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex