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CADJPY likely to weaken further

CADJPY has provided one of the better opportunities for FX traders this week due to tumbling oil prices. 

CADJPY was my preferred cross leading up to last Friday's non-farm payrolls. Going into the event it was sitting above 91.64 support and the bullish trendline and I had flagged it as a potential short due to my liking for broken trendline and support at the same time. 

The added bonus was that Canadian employment was released alongside US data so it looked good technically and had the potential catalyst on standby to get it over the line. Curiously, despite weak employment data from Canada, CADJPY remained above support for the week.

This is where plummeting oil prices took over as we have now seen the downside break, making CADJPY and ideal 'sell the rally' candidate. With OPEC refusing to cut production oil prices have tumbled to multi-year lows and there Canadian dollar is merely collateral damage. 

At time of writing the decline has paused for breath below Oct 28th swing low (90.57) and may provide a shorting opportunity with a fresh break below yesterday's low. We also have monthly S2 capping as resistance, so may be able to consider a tight stop and a market order around current prices.

A word of cuation: If you look at the weekly ATR in the top graphic you'll notice this week's high-low range is already 204.5 pips, which is well above the usual 130-150 pip weekly ranges seen in recent months. Whilst this does not mean we won't see lower prices over the week it does make it suseptible to a bounce higher before losses resume, especially when you consider it how exceeded the usual weekl range in just two sessions. 

Another  slight cause for concern (and subsequent bounce higher) is WTI meandering around the 9-year lows. It broke beneath but failed to close below a key level which leaves potential for a bounce higher. One would expect CADJPY to follow suit but at this stage suspect lower prices are inevitable. If, for example, it somehow mustered the energy to bounce higher I would consider bearish setups below 91.14-30 but as long as we remain below 91.64 resistance I'll assume a move down to 88.87 lows sooner than later. 

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