Forex volatility is finally back and in CAD/JPY, I see an opportunity to play the momentum in the current broad risk-off sentiment environment.
This is pretty much a simple Fibonacci retracement setup on CAD/JPY, which seems to be settling down after a monster down move due to this past week’s risk-off sentiment. And while China has made moves to stem global fears and support their markets, not much has really changed in terms of economics over the course of a few days. With the main driver continuing to be risk sentiment, I think buying Japanese yen is still a great probability trade, while selling the Loonie makes sense since it is tied to the oil markets (which have been slammed) and the potential decrease in Canada’s GDP reads as talked about by my main man Forex Gump.
Technically, the forex volatility has been huge, but I’m not sure if it’ll continue because of China’s actions, and that the driver is really all about China. But for now, I’m going with the momentum with a conservative entry on a pullback to the middle of the Fibonacci range highlighted in the chart above, with a wide weekly ATR stop. My target is big one in case volatility stays high or even increases. Here’s what I’m doing:
Short half position CAD/JPY at 92.00, max stop at 94.20, max profit at 85.00
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 3.18:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned!