Canadian Dollar Sinks vs Yen as Chart Setup Warns of Key Reversal
CAD/JPY TRADING Strategy: BEARISH
- Canadian Dollar sinks vs Yen, making good on Wedge and RSI divergence
- Bearish Engulfing candle pattern hints 2-month upswing may be exhausted
- Test of key 11-year support draws closer, warning of tectonic bias change
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The Canadian Dollar turned sharply lower against the Japanese Yen as expected, making good on a bearish Rising Wedge formation reinforced by negative RSI divergence. The currency found interim support in the 81.73-83 zone. A break lower would aim just below 81.00 were selling pressure to resume.
Zooming out to the weekly chart, positioning seems to suggest just that is in the cards. Prices have formed an ominous Bearish Engulfing candlestick pattern at resistance guiding them lower for over two years. Confirmation is pending for now, but the setup’s reversal implications appear convincing.
Weekly CAD/JPY chart created with TradingView
That this is happening against alongside swelling risk appetite is eye-catching. The bellwether S&P 500 index has pushed a record high, but a commodity-bloc currency has been battered against the perennially anti-risk Japanese Yen. That seems to say a lot about underlying CAD weakness.
From here, back-to-back support levels run down to the 80.00 figure. A daily close back below that would suggest the pull-up from August lows has been exhausted and the downtrend re-engaged. A subsequent break through trend support from January 2009 – now at 77.31 – would imply a tectonic change of bias.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.