FxWirePro: CAD/JPY minor trend slides through slopping channel, major downtrend intensifies on head and shoulder pattern

CADJPY has been sliding through the sloping channel (refer daily channel). Hanging man, Shooting star, and bearish engulfing patterns have occurred in the minor trend of this pair. 

The flurry of such bearish patterns plummet the prices below 7-DMAs, and have signaled weakness of this pair.

Although bulls attempt to bounce back for today, after testing channel support, the minor trend still appears to be edgy on the overbought pressures and the failure swings were observed at the stiff resistance. Consequently, bears bring swings back in the channel.

While there is no change in our long-term outlook, the major downtrend remains intact. On a broader perspective, the major downtrend of this pair which has been in the consolidation phase since December 2015 has now been signaling 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 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 alter our trading perspective, at spot reference: 79.091 levels, contemplating above technical rationale, it is advisable to tunnel options strategy using upper strikes at 79.592 and lower strikes at 78.456 levels, the strategy is likely to fetch leveraged yields as long as the underlying spot FX keeps dipping up to lower strikes on the expiration.

Alternatively, on hedging grounds, we advocate shorting futures contracts of mid-month tenors ahead of BoC monetary policy as the underlying spot FX likely to target southwards 77 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.