Looks like the technical signals are lining up for this CAD/JPY forex retracement play! Do fundamentals support this long trade idea though?
Zooming out from the 4-hour forex chart I was watching last week reveals that CAD/JPY previously broke above a longer-term falling trend line, which might act as support moving forward. In fact, the broken long-term trend line coincides with the rising trend line that’s just forming!
Support at the 61.8% Fib seems to be holding, although stochastic hasn’t quite shown a return in buying pressure just yet. However, a potential bullish divergence can be seen, with the oscillator making lower lows and price making higher lows.
I’m eyeing an entry area around the trend lines and the 95.00 major psychological support, with a stop below the 94.00 mark. If I’m able to catch a rally, I’ll aim for the previous highs near the 100.00 handle, but I’ll be trailing my stop along the way.
Even though risk appetite is taking a hit for now, I’m inclined to think that improving fundamentals for the Canadian dollar could keep the higher-yielding currency afloat. After all, the country just printed stronger than expected inflation figures and impressive employment data recently. On the flip side, Japan is still churning out disappointing economic figures, which might keep the possibility of additional BOJ easing on the table.
What do you think of my forex trade idea? As always, I look forward to seeing your feedback on my setup!
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