FxWirePro: CAD/JPY Hanging Man & Dojis Intensify Minor Downtrend, Head & Shoulder Pattern Reminds Major Trend – Trading & Hedging Setup

CADJPY’s flurry of bearish pattern candles, such as, hanging mans, Doji & engulfing candles intensify bearish swings. 

Hanging mans at 78.138, 77.643 and 77.503 levels, doji pops-up at 77.603 and bearish engulfing patterns occurred at 77.422 levels. 

Consequently, the current price slides below 7&21-DMAs with bearish crossover, for now, extension of price slumps is most likely on the intensified selling momentum as both the leading oscillators are showing downward convergence to the prevailing price dips (refer daily chart). To substantiate this bearish stance, bearish DMA crossover indicates that the ongoing downtrend is likely to prolong further.

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 tunnel options spreads using upper strikes at 76.341 and lower strikes at 75.317 levels. One can derive certain yields as long as the underlying spot FX keeps dipping but remain well above lower strike on the expiration.

Alternatively, we advocated, at spot reference: 77.417 levels, shorting futures contracts of mid-month tenors on hedging grounds, it has been performing as desired so far. Ahead of BoJ monetary policy that is scheduled on 28th of this month, we wish to uphold the same strategy as the underlying spot FX likely to retest southwards at 74 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.