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Canadian Dollar Sinks vs Yen as Chart Setup Warns of Key Reversal

Canadian Dollar Sinks vs Yen as Chart Setup Warns of Key Reversal

Ilya Spivak, Head Strategist, APAC

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

Check out our Q4 Japanese Yen forecast to see what will drive the price trend through year-end!

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.

Canadian Dollar vs Japanese Yen price chart - 4hr

4-hour CAD/JPY chart created with TradingView

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.

Canadian Dollar Sinks vs Yen as Chart Setup Warns of Key Reversal

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.

CAD/JPY TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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