Good morning forex friends! Here’s a setup that I’ve been watching for sometime: a rising triangle on CAD/JPY. Now that it’s broken to the upside, is it an opportunity to buy?
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Over the course of April and May, we saw the major psychological level of 100.00 hold as resistance, at least until last week when we saw a better-than-expected jobs report from Canada. Now that 100.00 is broken, will momentum buyers hop in to play this pair long? Of course, I don’t know, but with the longer-term trend on the yen continues to be bearish (BOJ likely to continue huge quantitative easing program), and according to takeaways from my main man Forex Gump, the recent Canadian jobs data could convince the Bank of Canada to hold off on a rate cut.
Of course, there are risks to the downside, and probably the biggest one that I can see for this pair is possibly another fall in the oil markets (Loonie has a strong correlation to oil prices), likely on emerging market demand (especially China). But I don’t think we’ll see another big shock in oil prices any time soon; if anything, demand could rise later from the U.S., typical behavior during the Summer season.
So, I’m looking to play this “break-and-retest” setup at a major psychological level, with the higher “lows” supporting the argument that buyers are still firmly in control. My stop will be a wide one of one weekly ATR, and my target will be the most recent swing high on the higher time frames, last seen in December 2014. Here’s what I’m doing:
Long full position CAD/JPY at 100.00, max stop at 98.00, max profit target at 105.00
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.5:1. 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 by following me on Twitter and Facebook!