Breakout alert! I’ve had my eye on this huge CAD/JPY consolidation pattern for quite some time now, and it looks like the floor has given way. Think I should hop in at market?
Short CAD/JPY Idea
Risk aversion made a strong comeback in the financial markets in the latest trading sessions, causing a bloodbath among higher-yielding assets and currencies. This dealt a double-whammy to the Loonie, which also caught an additional drag from weaker crude oil prices.
In contrast, the Japanese yen was one of the top performers for the day as it raked in most of the risk-off flows. This caused CAD/JPY to breach its daily wedge support around the 88.50 minor psychological mark.
Now this chart formation is approximately 1,500 pips tall, which suggests that the resulting downtrend could be of the same height. I’m also seeing a small head and shoulders reversal pattern spanning 87.00 to around 91.50.
Price also seems to have broken below the neckline, but I’m inclined to wait for continuation below the 87.00 mark or a pullback to the broken wedge support before hopping in. Canada still has its trade balance and Ivey PMI up for release in the next New York session, so there could be room for a retest and a chance to short at a better price.
Later in the week, Canada is set to release its jobs figures and might report a 2.0K drop in hiring for January. This might bring the unemployment rate up from 5.7% to 5.8% and, barring any developments in underlying data, this could weigh on BOC hike hopes.
Apart from that, I’m also keeping tabs on crude oil inventories data from the API and EIA. Analysts are projecting another buildup after Baker Hughes reported back-to-back gains in oil rig counts.
As for the Japanese yen, it could be all about market sentiment from here as there are no major reports lined up. So far, the odds are ever in its favor while traders are feeling doubtful about the factors keeping U.S. and global growth afloat.
See also: Q4 2017 Trading Performance Review
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