FxWirePro: CAD/JPY Minor Trend Fails At Stiff Resistance, Major Downtrend Intact On Head & Shoulder Pattern – Trade & Hedging Setup

CADJPY’s bears, in the minor trend, are shrugging-off the interim bulls upon failure swings at the stiff resistance zone of 78.500 levels, that’s where hanging man and bearish engulfing patterns pop-up at 77.643 and 77.422 levels respectively. Consequently, the current price attempts to slide below 7-DMAs, the dip below 7-DMA is most likely to resume bearish trend on overbought pressures (refer daily chart). 

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 78.559 and lower strikes at 77.300 levels. One can derive certain yields as long as the underlying spot FX remains between these two strikes on expiration.

Alternatively, ahead of Canadian GDP data announcement that is scheduled for this week, we advocate, at spot reference: 77.900 levels, 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.