CAD/JPY Bullish Divergence at 96.00

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.

CAD/JPY 1-hour Forex Chart

CAD/JPY 1-hour Forex Chart

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!

Cheers,

Happy time

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  • ForExchange

    Hi HappyPip,

    good setup there. As I wrote earlier, I am almost with all pairs long vs JPY. Exactly for the same reasons as you wrote: negative Japanese fundamentals and risk on sentiment. There is nothing at this moment to help JPY. I closed though my GBP trade as I think GBP might fall a lot soon. So I can write a recap how CAD is in the pack vs. JPY at this very moment with the pip counts: 1. AUD, 2. USD, 3. CAD, 4. CHF, 5. NZD. As you see, it is not the best but not the worst. Only the GBP and EUR is missing up there. As I said I closed GBP already and going long with EUR does not look too good for me.

    Another reason to go vs. JPY at this prices was carrytrade. JPY has the worst carry trade so I collect every day extra money on these trades.

    I wish you good luck,
    FE

    • Thanks for the vote of confidence! So far it’s looking good for my short-term CADJPY setup but I’m considering closing ahead of key events or at least taking off some profits and adjusting my stop. What do you think?

      • ForExchange

        Yeah, I am also not sure about this event. I think what I do is to tighten my SL. If I lose, it is limited, if I win it will be a big one. But your reasoning is logical!

        • How did your trade go? Mannn, I wish I kept a part of it open during the BOJ statement!

          • ForExchange

            Hi HappyPip,
            Well look at the charts! It shows how it was 🙂 Now I am a “HappyPip”! For this reason do I not like to close positions. Tight SL limits loss, but in case it turns out good…

            I wish you a successful week!

            FE

  • Chumpski

    It seems to me that it is stalling halfway up the channel at this point. Will the FOMC meeting have an immediate impact on this pair? As in could it push it up to your target or cause it to consolidate for a little while? I’m trying to connect the fundamental dots, it’s a bit overwhelming. Thanks for posting!

    • Yeah I’m thinking of closing ahead of the FOMC statement or at least taking off some profits. Pretty sure the impact on USDJPY would carry on to the other yen pairs and we’ve got the effect on risk sentiment to consider as well. There’s a good chance the FOMC will sound a little more dovish again, which could bring risk aversion back and push CADJPY lower. Let’s see!