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With the crude oil rallies these days, I’m waiting for an opportunity to buy the positively-correlated Loonie. Here’s a long-term setup I’m looking at against the yen.

Long CAD/JPY Idea

On the pair’s daily time frame, I’m seeing an inverted head and shoulders reversal formation, with price just inching close to testing the neckline. A break above this resistance area around the 83.50 minor psychological mark could be enough to spur a climb of the same height as the chart pattern.

Stochastic is still pointing up to show that buyers have the upper hand and could push for a move higher before seeing overbought conditions.

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

Apart from the crude oil gains brought about by risk-taking and the OPEC+ decision to trim output by an additional 500K barrels per day, I’m also seeing the NAFTA/USMCA progress as another bullish factor for the Loonie.

Canada also has its CPI and retail sales figures up for release, and those could be worth watching to gauge if the BOC is bound to shift its stance anytime soon.

Meanwhile, the yen has the BOJ decision to contend with, and it’s no secret that Japanese central bank officials appear to be mulling additional stimulus. No actual changes are expected for this week’s announcement, but a shift in forward guidance as previously hinted could weigh on the currency.

I’m looking to jump in a long position on a breakout to 83.75, with a stop that’s around as wide as the pair’s average volatility for December (194 pips).

CAD/JPY Volatility from MarketMilk
CAD/JPY Volatility from MarketMilk

As for my target, I’m gonna aim for 400 pips or the height of the reversal pattern, yielding a potential 2:1 return-on-risk for this setup. What do you guys think?


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