After waiting all month only to get out a break even, CAD/JPY finally breaks below the strong support just under 92.00. Looking for a pullback now to play the downside momentum.
Risk sentiment and commodity prices have been taking a hit lately, which includes oil–one of Canada’s top exports. So, it’s no surprise that now only are we seeing both weakness in the comdolls, but also the safe havens like the Japanese yen seeing strength on risk aversion flows.
For CAD/JPY, that means a strong downside move and finally breaking the strong support I was hoping to get past during my last short trade attempt on CAD/JPY. With oil prices still in a fresh downward move and hitting 2009 lows, I’m going go with the flow with a new short position, but only if there is a pullback to the broken support level.
Just to be conservative, I’m going to scale in my entries to the bottom and top of the range in case there is a big bounce, which could be coming as indicated by the stochastic indicator in oversold territory. My stop will be above the strong resistance area around the 93.00 handle, while my target for adjustment will be the major, major psychological handle. Here’s what I’m doing:
Short quarter position CAD/JPY at 91.50, max stop at 93.50, adjustment target at 90.00
Short quarter position CAD/JPY at 92.75, max stop at 93.50, adjustment 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 2.19:1. 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!