Checking out this textbook technical setup on CAD/JPY that plays into my relatively fundamental bullish outlook on the forex pair.
CAD/JPY Resistance Break & Retest?
Fundamentally, the Canadian economy has been a relative outperformer, which has been reflected in the Canadian dollar’s performance this year, and in the fact that the Bank of Canada continues to buck the major central bank trend of cutting interest rates, including today’s decision of holding the overnight rate at 1.75%. This is not likely to change in the next few weeks (unless the upcoming jobs data disappoints), so I’m staying bullish on the Loonie for now.
As far as the Japanese yen, it continues to suffer as global risk sentiment improves with regards to the moderately improving U.S.-China trade war and Brexit situation, and it’s likely we’ll hear dovish commentary from the Bank of Japan’s monetary policy statement this week given the slump in Japan’s export economy. Unless those conditions change, I’m staying bearish on the yen for the time being.
From a price action standpoint, CAD/JPY is pulling back from a solid +4.00% rally from the 80.00 handle in the past few weeks, sparked by a bit more negative tone from the BOC in today’s monetary policy statement. This could be an opportunity for me to play my swing long bias on the pair at a much better price, and I think that price could be around the previous resistance area break (around 81.50 – 82.00).
So, I’m looking to take a nibbler in that area, and if I’m still in that trade after the Canadian employment update on November 8, I may take another nibbler depending on what the Canadian jobs data may be. My max stop will be below the recent swing lows and major psychological area of 80.00, and my max target will be roughly two times the weekly ATR for an attractive short-term potential return-on-risk. Here’s what I’m doing:
Long half position CAD/JPY at 82.10, max stop at 79.80, max target at 85.00
I’m only risking 0.50% of my account on this trade and I’ve got max potential return-on-risk of around 1.26:1. If the upcoming BOJ statement and/or Canadian jobs data turn out to be bearish for CAD/JPY, I won’t hesitate to adjust out of the position to limit my max risk.
What do you guys think? Are you bullish on CAD/JPY or is there a strong bearish case that I’m missing? Let me know in the comments section below!
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