CAD/JPY potentially poised for a prodigious period
City Index November 26, 2015 1:24 AM
<p>Markets are calming down as US traders filter out for the Thanksgiving holiday, but there is one little-followed pair that could be shaping up for […]</p>
Markets are calming down as US traders filter out for the Thanksgiving holiday, but there is one little-followed pair that could be shaping up for a big move as we head into next week.
CAD/JPY has been consolidating in an increasingly tight range for the last three months, bounded on the top by the 93.25 barrier and on the bottom by rising trend line support (currently around 91.75). This price action has created a clear ascending triangle pattern, which in theory shows growing buying pressure as bulls step in at higher and higher levels following each successive dip. That said, this pattern comes within the context of a longer-term downtrend, so it could easily break lower as well.
It’s worth noting that the RSI indicator has formed an ascending triangle pattern of its own over the last three months. As we often highlight, a breakout in the RSI can serve as a leading or confirming sign of a breakout in price itself. Therefore, astute traders should keep a close eye on this indicator as we move through this week.
While the trading graveyard is littered with analysts who have speculated on geopolitical developments, the simmering conflict between Russia and Turkey could be a catalyst for the pair. After all, the yen tends to strengthen during periods of conflict, and we could also see an impact on oil prices, which are closely correlated with the value of the Canadian dollar.
Regardless of what happens in Turkey, there are less than 150 pips between support and resistance on CAD/JPY, so a breakout is inevitable in the coming days. A confirmed close above the 93.25 level could open the door for a run toward the 50% Fibonacci retracement at 94.25 (not shown) or even the 61.8% retracement around 97.00, whereas a bearish break would likely expose the previous lows at 90.60, 89.00, or even 87.30 in time.
As always, readers are advised to let the price action guide them and be patient for the right opportunity before committing too strongly in either direction.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.