FxWirePro: RSI Divergence Coupled With Doji To Hamper CAD/JPY Buying Momentum – Directional Hedge Ahead of BoC

CADJPY has been spiking through rising channel (refer 2H chart). Bulls appear to be exhausted on overbought sentiments coupled with the doji pattern at 83.206 levels. The price is attempting to slide below 7 & 21-DMAs in the minor trend of this pair. 

While bulls attempt to bounce back 7EMAs in the major trend, the minor trend still appears to be edgy on the overbought pressures, any failure swings at 21-EMAs can resume downtrend. These levels were acted as the stiff channel resistance several times in the recent past. Consequently, bears managed to pull swings back below EMAs.

On a broader perspective, the major downtrend of this pair which has been in the consolidation phase since December 2015 has now been signalling 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 still seems to be weaker as both momentum oscillators (RSI & Stochastic curves) and bearish EMA & MACD crossovers are still in bears’ favor.

Trade tips: At spot reference: 83.175 levels, ahead of BoC monetary policy meeting that is scheduled for this week, contemplating above technical rationale, it is advisable shorting CADJPY CME futures contracts of November-month tenors, simultaneously, add fresh longs in December tenors on hedging grounds, as the underlying spot FX likely to target southwards in the near terms and consolidate in the medium terms.