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Happy New Year, forex folks! I’m kicking off 2018 with this simple reversal play on CAD/JPY now that crude oil prices are on a tear.

Long CAD/JPY Idea

The pair recently broke past the neckline of a double bottom formation on its -4-hour time frame and has also surged past a short-term descending trend line.

However, price seems to be hitting a roadblock at the 90.00 major psychological level on its northbound route. More bullish momentum might be needed to bust through this level, and a correction could be enough to draw buyers in.

Applying the Fib tool on the latest swing low and high shows that the 61.8% retracement level is closest to the broken trend line while the 38.2% Fib lines up with the broken double bottom neckline and 89.00 handle.

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

Stochastic is on the move down for now to show that buyers are taking a break and might let sellers take over.

I’m bullish on the Loonie mostly due to the crude oil rally spurred by the unrest in Iran. This has kept a lid on production from the OPEC nation, keeping global oversupply fears at bay. Earlier today, the API just reported yet another large draw in stockpiles.

Apart from that, data from Canada has been mostly stronger than expected, particularly on the jobs front. Recall that the BOC has already hiked rates twice last year, though, and policymakers have stressed that they’d be more careful about future tightening from here.

As for the yen, it looks like the Japanese currency is on the back foot as the BOJ is trailing behind the central bank pack when it comes to reducing stimulus. Although Governor Kuroda briefly spoke of looking out for potential damage from aggressive easing, their latest policy statement and presser didn’t contain hints of tapering just yet.

Besides, the rebound in the dollar this week has proven bearish for the yen, so I’m counting on another round of strong U.S. data or signs of higher business activity on corporate tax cuts.

I’m looking at a potential entry area from 88.25 to 89.25, with a stop around 87.50 and target of new highs past the 90.00 handle. What do you guys think?

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