Trade Idea: CAD/JPY Channel Breakout

Thanks to stronger expectations for an OPEC output deal this month, the oil-related Loonie has been steadily climbing and I’m seeing this potential CAD/JPY downntrend reversal.

CAD/JPY Trade Idea

The pair has been trading inside a descending channel on its daily time frame but seems to be busting above the resistance at the moment. This could be an early signal that bulls are regaining control of price action, possibly taking the pair to the next ceiling around the 87.00-88.00 levels.

CAD/JPY Daily Forex Chart

CAD/JPY Daily Forex Chart

Zooming in to the 4-hour time frame, I spotted a descending triangle breakout that could provide me with better entry levels. Applying the Fib tool on the latest swing high and low shows that the 38.2% level lines up with a near-term area of interest and is also close to the broken triangle resistance around 79.50-80.00. Stochastic is indicating overbought conditions on both the daily and 4-hour charts so corrections could be due.

CAD/JPY 4-hour Forex Chart

CAD/JPY 4-hour Forex Chart

More and more headlines are hinting of an output deal by the end of this month, as OPEC experts are currently in technical talks to iron out the details of target production levels. Sources have mentioned that several members are prepared to offer more flexibility for Iran whose production has been dampened by sanctions in the past few years. Over the weekend, Russian President Putin also expressed his belief that the oil cartel members will finally reach an agreement this month, adding that they will be willing to cooperate as well.

As for the Japanese yen, the pickup in risk appetite ain’t doing the lower-yielding currency any favors at the moment. Besides, several risk-averse traders seem to prefer the safe-haven U.S. dollar lately since Fed head Yellen pretty much confirmed that a December hike is in the bag. Of course we’ve still got updated Japanese inflation figures due later on this week so CAD/JPY could enjoy additional volatility. Canada’s retail sales figures are up for release today and smaller gains could get those retracements going.

But if the actual figures turn out stronger than expected, I’m prepared to go long at market for 0.25% risk with a wide stop below the 61.8% Fib to give me room to add in case CAD/JPY still retraces. I’ll be aiming for the 88.00 area as my ultimate profit target but I’ll be trailing my stop once price tests the nearby area of interest at 84.50.

As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.

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