Price action in CAD/JPY has been slowly creeping higher and tightening up. Are forex traders ready to break this consolidation pattern?
As previously mentioned above, CAD/JPY has been grinding higher since the end of October. Price action has been tightening up as well as 93.00 seems to be holding off forex traders from breaking higher buyers still in control enough to create higher “lows.” Now, this type of pattern tends to bias an upside breakout, but I’m looking for a short on a break of the rising highs and moving averages for several reasons:
- Weakening oil prices on increasing supply (bearish CAD)
- Underlying weakness in Canadian Jobs data (bearish CAD)
- Global growth concerns to raise risk aversion behavior (bullish JPY)
These fundamental stories have the potential to push the pair lower, but right now the positive headline number from the Canadian jobs is likely to keep the pair elevated in the short-term. This is why I’ll wait for a break below the rising trendline and moving averages before going with a small short position. If I do get triggered, my stop will be above recent highs (and strong resistance) just above the 93.00 handle, and my max target will be the strong support area seen in August and September. Here’s what I’m doing:
Short half position CAD/JPY at 92.25, max stop at 93.75, max target at 90.00
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 1.5:1. 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!