CAD/JPY has been used as a proxy for crude oil in the past. Canada produces a lot of oil and Japan produces little oil and needs to import it. The downward trend in CAD/JPY from December 2016 to April 2017 provides some bullish symptoms.
First, the pair fell to the 61.8% retracement level near 80.21, and then rebounded higher. This indicates to me that the market is respecting this common retracement level.
Secondly, the price action in January and February looks like an Elliott Wave triangle pattern (highlighted box in the chart below). Due to the position of the triangle, it implies a large chunk of the downtrend may be retraced. You see, triangles precede the terminal wave in the sequence. That suggests the burst lower after the triangle is a terminal wave. As a result, we will use strength in the market to buy into on a breakout play higher.
The recent swing high of 83.74 is our trigger zone. The first area we will target on a successful break higher is 85. A secondary target is near 88.
If prices are successful in pressing higher into the 83.74 zone, then we will set the risk at the 200 day simple moving average, which is currently parked near 82.64. We want the risk to reward ratio to be positive on the first leg such that we are looking to target more than our risk.
On a successful break higher, we will manually trail the stop loss.
Interested in fundamental outlooks for Japanese Yen and Crude Oil, read them now.
---Written by Jeremy Wagner, CEWA-M
Other recent articles by Jeremy:
Is GBP/USD Carving a 2017 Top?
USD/CAD Appears to Resume a Longer Term Downtrend
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