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I’m looking at another potential risk-off play this week, and this technical setup on CAD/JPY seems too good to pass up!

Short CAD/JPY Idea

This pair is forming a descending channel on its 4-hour time frame with its lower highs and lower lows. Price just bounced off support and is currently pulling up to the mid-channel area of interest.

This region is spanned by the 38.2% to 50% Fibonacci retracement levels, which appear to be keeping gains in check for now. A larger pullback might still make it to the very top of the channel at the 83.00 major psychological level, which is where I’m hoping to short.

CAD/JPY 4-hour Forex Chart
CAD/JPY 4-hour Forex Chart

However, stochastic is already on its way down to show that sellers have the upper hand and could take price back to the swing low at 81.00 or to the channel bottom.

I’m inclined to wait for a higher correction, though, since Canada just printed stronger than expected retail sales data. This could keep growth expectations anchored and convince market watchers that the BOC ain’t likely to cut rates anytime soon.

Then again, bigger fundamental themes hint at further downside for higher-yielding currencies, especially if trade tensions don’t let up. Another round of tariffs from both the U.S. and China could extend the ongoing global growth slowdown, which could mean more downside for commodities and the oil-related Loonie.

At the same time, this could keep propping up the yen as global bond yields face more declines. The Japanese currency might also be able to steal some safe-haven flows from the U.S. dollar in this case as well.

For now, I’ll be patient in waiting to see if CAD/JPY reaches the channel top and how price reacts to that level. I plan on setting a wide stop past the 84.00 mark and aiming for the channel bottom close to 80.00 if I’m able to short.

Care to share your thoughts on this setup?


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