CADJPY broke down from a nine-month ascending channel on December 5th.
That was a big moment for sellers. It was also an event I had eluded to several times throughout November.
The first key support following the December 5th breakout was the 83.80 area.
Sure enough, CADJPY caught a bid here on the 6th after a single session decline of 115 pips.
But there’s another reason the pair bounced from this area.
More on that in a moment. First, I want to point out the retest of the 85.00 handle as new resistance last week.
I was already short based on a signal I pointed out in the member’s area, but last week’s retest of 85.00 offered another chance to get short.
Then came my comment on Sunday about looking for an entry at 84.70/80 this week.
Here’s what I wrote just two days ago:
If you aren’t already short, you could look to sell on strength this week. Perhaps a retracement up to 84.70 or 84.80 will offer something.
Monday’s price action played out perfectly. CADJPY reached a high of 84.84 before tumbling 150 pips.
As you can see, we’ve had plenty of opportunities to get short.
So what is this other reason for the December 6th bounce near 83.80?
There is actually a much larger ascending channel in play than the one I first announced in late October.
Since the 2016 low at 74.80, CADJPY has been trending higher. And as you can see from the chart above, the pair has also carved a massive ascending channel.
Given that this pattern formed following a selloff of more than 3,000 pips, I’m inclined to treat this as a bearish flag of sorts.
Now, if we drill down some more, you can see how CADJPY closed below the 2016 channel support yesterday.
That means the 83.80 area should now serve as resistance if tested.
No surprise there as this was already a horizontal level on our radar. But now we have even more reason to suspect a continuation of this recent selloff.
I still like 80.60 as a target over the coming weeks. That won’t change unless the pair closes back above new resistance at 83.80.
The late June swing low near 83.20 will also likely attract a few buyers on the way down.
Keep in mind the upcoming Fed rate decision and statement will likely shake things up purely as a risk event.
We also have a BoJ rate decision and presser in early Thursday trade.
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