Swing Short on CAD/JPY

Forex Trade Idea: 2014-03-17

Taking a swing short on CAD/JPY to play the recent downtrend. Will forex traders continue to press the trend lower?

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CAD/JPY 1 Hour Forex Chart

CAD/JPY 1 Hour Forex Chart

I decided to go with this simple Fibonacci setup on CAD/JPY to start the week. The pair has been in sell mode, sparked by a combination of fears that China is slowing down and on geopolitical fears that the situation in Crimea may spark into a war between the West and Russia. Predicting whether either will turn around (or that the focus will shift to something new) is nearly impossible at this point, but I think it’s a good probability trade to go with the current trend.

The risks to this trade is that there are Canadian economic reports this week, most notably the manufacturing sales report tomorrow. ¬†Also, BOJ Governor Kuroda will be giving a couple of speeches this week, and traders will be on the lookout for dovish rhetoric now that the Japanese Yen has gotten much stronger in the past few weeks (a stronger yen can hurt Japan’s recovery).

For now, I’m going with the trend lower, with a volatility stop of the daily average true range (ATR), and using the Fibonacci extension tool, targeting the 100% Fib extension. ¬†Here’s what I am doing:

Short at market half position CAD/JPY (91.90), stop at 92.80, profit target at 90.50

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

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 1.55:1. 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 by following me on Twitter and Facebook!

  • Harry Pilgrim

    Is that airspace I see between Y91 and Y85, the 2011 and 2012 summer tops? Could it be worth taking a longer term view of this if it’s WWIII or something?

  • Pipcrawler

    Greetings Harry…since I trade mostly with the trend nowadays, I try to build in a potential long-term scenario if the situation turns in favor of that. But usually with trades that are long Yen, I try not to go long term because of the negative carry. The situation would have to be just right in that it would have to be something that would spark strong bullish momentum for the yen; a WW3 scenario might fit that, but I really hope we never see anything like that.

  • Sid

    Hi Pipcrawler, i have a question price is now approaching the 91.037 mark

    according to my technical analysis correct me if i am wrong I would be going long CAD due to resistance @ 91.037 looking back price has done some nice swings between 91.037 -93.725 those are some nice 200+ Pips moves but your analysis shows that u believe resistance would be broken and there will be a downward 90 pip move.. can u elaborate on why u believe resistance will be broken and not respected? I know that we have some data coming out which is supposed to be negative on the CAD do u believe that will pull the pair 90 pips down? to 90.50?

    • Pipcrawler

      Greetings Sid, thanks for your thoughts! I don’t know if 91.00 will break…no one knows, until it does or doesn’t. I’m just going with what I mentioned in my post: geopolitical fear (usually yen bullish). Also, CAD has been in a downtrend on a broad base with Canadian data being relatively weak over the past year.

      So for my understanding, the probability is a move lower and since I’m already in the trade, it’s all about trade management here for me. If it breaks great, I’ll reassess and adjust my plan to maximize my gain. If it reverses, then adjust my stop to create smaller risk or a risk-free trade.