Daily Price Action

CADJPY Weekly Reversal Pattern Still in Play


I wanted to take a few minutes to mention a pattern that was not included in the recent weekly commentary, but is still very much on my watch list.

Since January of 2013, CADJPY has been carving out what appears to be a head and shoulders reversal. The thirty four-month pattern formed after the pair reached a high of 106.50 last December, a level that had not been seen since 2008.

The rally that followed in 2015 stalled at the exact same level that capped the advance in 2013. The 101 handle is therefore responsible for triggering the declines that led to both the first and second shoulder of the pattern.

Fast forward to today and we can clearly see that the neckline was broken in late August, a period of time when all of the yen crosses came under heavy selling pressure. This level was then retested as new resistance on October 9th and has held as such ever since.

Reversal pattern on the CADJPY weekly chartThe idea that we could get a second retest of the neckline looks less promising with each passing day. With this in mind, traders may be forced to wait for a break below the 89 handle or even 87.30 before considering a short entry.

While waiting that long may seem like lost opportunity, I assure you that it isn’t, at least not by my standards. It is far more advantageous to preserve your capital in anticipation of a break from the current range rather than losing money in the directionless price action that has plagued CADJPY for the past two months.

Also remember that even a move to 87.30 would still leave nearly 900 pips of downside potential before the measured objective is reached at 78.50. But before we even begin to consider a move of that magnitude, we first need to see a close below the current range floor.

Summary: Watch for a selling opportunity on a daily close below 89 and/or 87.30. Key support below there comes in at 84.95 and 81.20 with a long-term measured objective at 78.50. Alternatively, a daily close back above the neckline would negate the bearish bias and turn our attention higher.

CADJPY key levels on the daily chart

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