The Bank of Canada will be making its interest rate statement today, so I’m looking at potential entry levels for this CAD/JPY play.
Long CAD/JPY Idea
In my watchlist blog post, I highlighted an inverse head and shoulders formation visible on the pair’s daily time frame. This is a classic reversal signal, but of course price has to break past the neckline resistance first.
Price is already testing this neckline at the 88.00-89.00 major psychological levels so the actual BOC announcement could determine whether or not a breakout is due. Yen weakness has been in play for the most part of the week as economic reports from Japan haven’t been so impressive and traders are pricing in a dovish BOJ statement next week.
Zooming in to the 1-hour time frame, I’ve also spotted a potential pullback entry to a rising trend line connecting the recent lows of CAD/JPY action.
I’m thinking a “buy the rumor, sell the news” scenario could come into play during the actual event because hawkish expectations have been priced in for some time, so there’s plenty of room for disappointment as well.
In that case, CAD/JPY could retreat from its climb until more Loonie bulls defend nearby support areas. The 38.2% Fibonacci retracement level lines up with the trend line and an area of interest, so I’ll keep close tabs on these 86.50-87.00 levels to try to catch a bounce.
Here are the entry areas I’m watching:
Buy stop at 89.25 on a break of the neckline or go long on a pullback to 86.75, wide 200-pip stop based on pair’s WATR, profit target at next long-term area of interest at 91.25.
The neckline breakout entry should still give me a good 1:1 return-on-risk on this setup while the pullback entry would offer a nicer 2.25-to-1 R:R. If you’re trading this event also, I highly suggest you check out Forex Gump’s BOC decision trading guide!
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