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I’m seeing descending channels on the short-term and long-term charts of CAD/JPY, suggesting that bearish pressure is getting much stronger. Here’s my strategy for catching the ongoing selloff.

CAD/JPY Trade Idea

I know I’ve already got a short Loonie play going on with my USD/CAD trade, but I’m thinking of closing that one early and replacing it with this neater setup. After all, forex players seem reluctant to buy the dollar while the Trump administration is scrambling to get its act together.

In contrast, the Japanese yen has been makin’ it rain in the past few days, taking advantage of the drop in U.S. bond yields and the return of risk aversion. It also appears to be the safe-haven favorite leading up to Article 50 D-Day!

From a technical standpoint, I’ve seen a 4-hour channel break down on CAD/JPY recently, indicating that its daily descending channel could hold and that price is gaining more downside momentum.

CAD/JPY Daily Forex Chart
CAD/JPY Daily Forex Chart

I’m tempted to just hop in at market to ride the drop, but I’m also seeing some signs of a pullback on the 1-hour time frame so I’ll need to be a little more patient for now. Take a look at this smaller descending channel and how the Fibs line up with an area of interest right at the 84.00 resistance.

CAD/JPY 1-hour Forex Chart
CAD/JPY 1-hour Forex Chart

I’m eyeing a potential short position at that 84.15 area with a stop past the swing high and 86.00 mark. I know it’s a little wide but keep in mind that I’m looking at the daily chart for my targets, which will be at the mid-channel area of interest near 81.00 then at the previous lows around 76.00.

I’m pretty bearish on the Loonie because of all the oil-related headlines indicating a buildup in stockpiles, gains in U.S. rig counts, and indecision among OPEC members when it comes to extending their output deal until the end of the year. Besides, BOC Governor Poloz just mentioned that the downside risks to their outlook mentioned in their earlier rate statement are still on the table.

I haven’t set any actual entry orders yet since I’m waiting to see if CAD/JPY can be able to pull up to the channel resistance or if it will make another sharp break lower once risk-off flows surge. Don’t forget to check out our risk disclosure if you’re trading this one, too!



See also: Q4 2016 Trading Performance Review

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.