Trend Line Play on CAD/JPY – Trade Closed

Trade Closed: 2012-04-25 03:24

I thought I had a winner with this CAD/JPY trade, but I guess I thought wrong! The trend line that I drew up didn’t get the respect I thought it would, and the market ended up violating it several times.

CAD/JPY 4-hour Chart

For a while, sellers were actually in control of CAD/JPY as the pair found its way below 82.00 at the start of the week. But with help from speculation on more QE from the Bank of Japan, CAD/JPY buyers were able to take over. Even the worse-than-expected Canadian retail sales report did little to counteract the market’s bullishness!

Since the trend line that I based my trade on has been broken, I decided to exit my trade early and take a small hit. Here’s what happened:

Closed manually at 82.51: -44 pips / -0.29%

It’s a pity I couldn’t grab a win with this trade, but on a positive note, it didn’t do me much harm either. Though in retrospect, I do regret not moving my stop to break even when I was up by as much as 85 pips! Drats!

Thanks reading my blog! I’ll have another trade idea up soon, I promise!

Trade Idea: 2012-04-19 02:01

It’s been a while since I last traded this pair, but take one look at this setup and you’ll see why I couldn’t pass this opportunity up! After finding support at 80.25, CAD/JPY has been on a wild sprint up the charts on the strength of hawkish comments from the Bank of Canada.

CAD/JPY 4-hour Chart

Still, I believe those sentiments have been priced in already and that it’s time for this pair to reverse course. The overall trend of yen pairs the past couple of months has been down, as the yen has gained strength thanks to growing concerns about the global economy and the euro zone’s debt problems.

As it is, the pair is testing a falling trend line and Stochastic is now in overbought territory. This indicates that the recent buying pressure may be coming to an end and it’s time for sellers to reassert themselves.

I also think we could see some risk aversion take place today, as we’ve got Spanish bond auction coming out soon. Spain has been in the limelight recently and if today’s auction disappoints, it could trigger widespread selling across financial markets.

Here’s what I did:

Shorted CAD/JPY at market (82.07), stop loss at 82.82, take profit at 80.25.

I think that a 75-pip stop will suffice, because if price does reach my stop loss, it will invalidate the falling trend line that I drew up. I’m currently aiming for former support at 80.25, as it has been a formidable support level. Lastly, I’m only risking 0.50% of my account on this trade, as I recognize that I haven’t traded this pair in awhile and there is potential for some wild moves today.

Looking ahead, I’m also concerned with the Canadian CPI report coming out tomorrow. If the index indicates that inflation is much stronger than anticipated, it may give more incentive for the BOC to implement tighter monetary policies. That said, I may choose to close my trade before the release just to avoid event risk.

What do you fellas think? Do you think the trend line will hold on CAD/JPY?

  • Digitalgypsy

    I like your setup bro.  I am long but it could go either way.  The confirmation for me was dovish BoJ and Hawkish BoC.  We’ll see how this plays out.

    • cyclopip

      Good analysis. I agree with you and that’s why I decided to scale back some risk on this one. 

      • Digitalgypsy

        Looks like this is going to be a tough one.  We’re still pretty much where we started lol.  I’m also in a small position because your analysis also makes valid points.

        • cyclopip

          There’s also a doji on the daily. Let’s see how today’s candle closes! 

          • Digitalgypsy

            Canada’s CPI will definitely lead the way…

  • raja

    the set up look eye catching but there are other factors apart from falling trend line to consider. there is a strong suppoert level at 81.83.
    price has already been bounced off of weekly support  line and making a bullish candle.
    after making a double bottom the price has made a HH, whish suggest, the trend may be changing.

  • cyclopip

    Phew! Glad I exited this trade early. Saved myself a few bucks as CAD/JPY reached my stop loss last night.