Not only am I seeing a bullish divergence on CAD/JPY, it seems that this forex pair could be driven by a monetary policy bias divergence between its respective central banks!
First up, here’s the CAD/JPY technical setup that Big Pippin shared in today’s Chart Art. As you can see from the chart below, stochastic formed lower lows while price made higher lows, creating a divergence right at the rising channel support.
If support at the 96.00 handle holds, CAD/JPY could soon make its way back to the top of the channel near the 97.50 mark. I’m inclined to wait for a bit more momentum or a strong green candle before jumping in though.
Just recently, the Bank of Canada strayed from the dovish monetary policy camp as it confirmed that inflationary pressures are improving in the country. Around the same time, BOJ Governor Kuroda admitted that Japan might have trouble meeting its 2% inflation target and that the central bank might have to resort to additional stimulus if commodity and energy prices keep falling.
With that, I’m thinking of going long around the 96.00 levels with a stop below the channel and a target of 97.50. If risk appetite improves, I could consider aiming higher while trailing my stop to reduce exposure and lock in profits along the way.
What do you think of my short-term forex trade idea? Looking forward to your feedback, as always!
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