Whew, that was a close one! CAD/JPY zoomed right back up after breaking below the double top neckline, creating a new descending channel formation so I think it’s time to make some adjustments. Make sure you read my initial trade idea in case you’re wondering what I’m talkin’ about!
Just when I thought I caught a pretty good entry with my short position just below the reversal formation’s neckline, the pair bounced off support at the 85.00 handle and climbed close to my original stop loss at 88.25. As it turns out, CAD/JPY is forming a descending channel pattern on the same time frame so the downtrend still seems to be intact.
I’ve thought about exiting this position early to cut my losses since the outlook for Canada’s energy sector seemed brighter when Trump gave the green light to build the Keystone XL pipeline. You see, this would carry approximately 830,000 barrels per day of oil from Alberta to U.S. refineries in the Gulf Coast, which would basically mean a guaranteed customer for Canada’s oil producers. However, Canada also has NAFTA negotiations to worry about since higher tariffs and taxes on its goods might deal a larger blow to trade activity and overall growth.
As for the Japanese yen, the upcoming BOJ statement could do a number on the pair but it looks like traders are bracing themselves for optimistic remarks from the central bank. Besides, BOJ policymakers were already busy with their yield curve targeting efforts last week so I doubt they’ll pull more tricks this time. Falling U.S. bond yields are also reviving demand for the yen for the time being, but this could change during the FOMC statement.
Because of these risks, I’m tightening my stop to the latest high around 87.75 in order to trim my potential losses in case price spikes out of the descending channel during the actual events. I’m still keeping my fingers crossed that the pair could make it at least to the channel support around 84.50-85.00 so I could roll my stop lower once more and lock in some gains. Don’t forget to check out our risk disclosure if you’re trading this one, too!
See also: Q4 2016 Trading Performance Review
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