CADJPY bulls made an impressive move on Friday. The pair has been consolidating within an ascending channel since the August 11th low at 85.50. However, Friday’s close at 88.88 appeared to break resistance levels at 88.20 and 88.60.
We discussed this 4-hour channel on August 25th when the pair was trading at 87.55. The idea at the time was to watch for a sell signal from the confluence of resistance at 88.20.
Those plans fell through when buyers extended Friday’s rally above channel resistance near 88.60. But just like the EURGBP bullish exhaustion pattern, I didn’t entertain a long position as buyers had already signaled exhaustion via the 4-hour ascending channel.
Moreover, I take Friday breakouts with a grain of salt. The subpar volume at the end of the week always raises questions about validity, particularly when Monday is a holiday for the U.S. and Canada.
As you can see from the chart below, the pair is once again testing the 88.20 area, this time as support. The 88.20 handle has been a key pivot since July 10th. Its influence is especially apparent from the daily time frame.
It also seems that sellers have gathered near 88.60, which is the channel resistance that was allegedly broken on Friday. That brings us to an important question as we enter a new week of trade.
Was Friday’s break false?
At the moment, I would say the answer is yes. The fact that offers overwhelmed bids at channel resistance (88.60) indicates that buyers may not be willing to support Friday’s break.
While that seems to be true, we may not have a definitive answer until bulls surrender the 88.20 level on a daily closing (5 pm EST) basis.
Such a close would negate any notion that buyers are in control and would also expose channel support near 87.50. A close below that would pave the way for a move toward the August low of 85.50.
As mentioned above, today is a holiday for the U.S. and Canada. That means volume will be lighter than usual so be extra cautious if trading a break that occurs as a result of today’s close.
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