Time for a comdoll rally!
As I mentioned yesterday, I have a couple of reasons why I believe that the Loonie will soon experience gains against the yen. Of course, it also doesn’t hurt that since yesterday Canada has printed a huge upside surprise in building permits (10.5% vs. -2.3% expected!) and that crude oil prices rose to its weekly highs.
This is why I decided to enter at 96.00 when I saw that the pair is starting to show dojis and green candles on the 4-hour chart. What’s making me more confident is that the level is also right at the 96.00 major psychological handle and that Stochastic has already crossed in the oversold region. My stop loss is 125 pips away (half of its weekly ATR) and for now I’m targeting the mid-channel area at 99.00.
Here’s the gist of my plan:
I risked 0.5% of my account at 96.00 with my stop loss at 94.75 and my initial profit target at 99.00.
I’ll watch this trade closely, of course. New BOC Governor Stephen Poloz is set to speak in front of a Parliament Committee and Canada is set to release its IVEY PMI and employment numbers over the next couple of days.
How about you? What would you have done with this setup? As always, comments and suggestions are always welcome!
Trade Idea: 2013-06-05 6:50
For the past couple of weeks the comdolls have steadily declined against its counterparts. Overall risk aversion and weak comdoll data encouraged a lot of traders to sell the Aussie, Loonie, and Kiwi. In fact, CAD/JPY has already fallen by a ridiculous 470 pips from early May!
Despite that, I’m willing to risk a couple of pips on a long CAD trade against the yen. Here’s why:
1. CAD/JPY’s rising channel on the 4-hour chart has been intact since February this year. A position at the bottom of the channel would give me a good reward-to-risk ratio. Not only that, but it’s also a trade that goes with a long-term trend.
2. Oil prices usually rise in the summer as vacationers spend more on fuel for their summer trips. As we all know, higher oil prices means more Loonies are needed to pay for Canada’s top export product.
3. The yen has already gained significantly since the great profit-taking in May. If it goes up any higher and approaches its pre-Abenomics levels, I believe that the BOJ would step up to at least jawbone or actually introduce new measures that might weaken the yen.
4. USD/JPY is having trouble breaking below 99.00, which is a significant resistance-turned-support level. If the pair signals that the pair is ready to resume its uptrend, then the yen could once again fall across the board.
I know that the force against the comdolls are quite strong these days, so instead of entering at the 96.00 psychological handle, I’ll wait for candlesticks to signal a reversal. If I see the signs, I’ll most likely put a stop that’s ½ WATR in size and set my profit target somewhere around the mid-channel resistance.
What do you think? Are these reasons enough to take the long CAD/JPY trade at the bottom of the rising channel? Don’t forget to read the risk disclosure if you’re planning on trading this setup with me!
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