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An Intraday CAD/JPY Ascending Channel is Creating Scalping Environment

An Intraday CAD/JPY Ascending Channel is Creating Scalping Environment

2011-02-22 21:44:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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After declining for much of 2010, the CAD/JPY has seen a steady appreciation since late-October, rallying over 600-pips in the process. The appreciation has continued in the early part of 2011, with the first two months of the year market by a continuation of the ascending channel, albeit in a tighter range. Recently, 25- to 50-pip moves have been common place, as the CAD/JPY pair has touched both the range top and range bottom four times in the new year. Now, the CAD/JPY pair is coming off of its 2011 high set last week , and for the time being, with little event risk on the horizon for Australia or Japan, the pair is set to continue within its channel and provide scalping opportunities to traders.

Key Technical Levels

an_Intraday_CADJPY_ascending_channel_is_creating_scalping_environment_body_Picture_10.png, An Intraday CAD/JPY Ascending Channel is Creating Scalping Environment

Charts created using Strategy Trader– Prepared by Christopher Vecchio

The channel has held through the first two months of 2011, carving out a 350-pip range in the process. After hitting a low of just below 81.500 on February 3, the pair has since rallied to as high as a few pips over 85.000. The CAD/JPY pair, however, has since retraced its gains, falling over 120-pips in the process. While pressure remains to the downside, with the pair having completed its most recent leg-up in its channel, it appears that a slight correction upwards may be in order as the CAD/JPY pair has broken outside of the lower envelope of its Bollinger Bands.

an_Intraday_CADJPY_ascending_channel_is_creating_scalping_environment_body_Picture_16.png, An Intraday CAD/JPY Ascending Channel is Creating Scalping Environment

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Looking at the 60-minute charts, the CAD/JPY is in a well-defined ascending channel, though since February 11, has been trading sideways. With the CAD/JPY pair approaching the range regression of the channel, the pair could rebound upwards. However, now that the pair has broken below its 23.6 Fibo at 84.125 on the daily chart, downside pressure remains as it tests its 38.2 Fibo. The pair remains well above its major moving averages, a clear sign that the overall momentum remains to the upside for the CAD/JPY. A bearish divergence on the MACD Histogram indicates that the pair is poised to potentially decline further over the next few hours.

Key Support/Resistance Levels to Watch

Indicator

Timeframe

Level

Fibonnaci – 00.0%

Daily

85.150

Fibonnaci – 23.6%

Daily

84.125

Fibonnaci – 38.2%

Daily

83.642

5-SMA

Daily

84.319

20-SMA

Daily

83.229

50-SMA

Daily

83.031

100-SMA

Daily

82.138

200-SMA

Daily

83.026

Bollinger Bands – Upper

120-min

84.855

Bollinger Bands – Lower

120-min

83.778

Quantitative Metrics

Heading into the next few hours, with an ATR of 83 on the daily charts, it appears that there is room to scalp as the pair remains above its significant moving averages, while finding near-term support at the 38.2 Fibo. Now, having broken below the 23.6 Fibo, and the Slow Stochastic oscillator issuing a sell signal, momentum for the CAD/JPY pair is to the downside.

an_Intraday_CADJPY_ascending_channel_is_creating_scalping_environment_body_Picture_13.png, An Intraday CAD/JPY Ascending Channel is Creating Scalping Environment

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Volatility / Activity Indicators

EURUSD

GBPUSD

USDJPY

USDCHF

USDCAD

AUDUSD

NZDUSD

GBPJPY

EURJPY

ATR (14)

0.0135

0.0133

0.6472

0.0107

0.0072

0.0098

0.0083

1.3183

1.0894

ATR %

0.99%

0.82%

0.78%

1.14%

0.72%

0.98%

1.11%

0.99%

0.96%

5d - 20 d SMA

0.0005

-0.0102

-0.5896

0.0039

0.0054

-0.0022

0.0093

-1.7989

-0.7651

Bollinger Band

0.0363

0.0456

2.8577

0.0462

0.0201

0.0309

0.0356

6.3401

2.9734

Implied Vol (1wk)

10.4550

9.1700

8.5850

10.7025

7.7450

11.2850

11.9850

10.1500

10.2700

Possible Fundamental Affect

The docket is empty for Japan over the next few days, while Canada has some economic data due tomorrow – though it is generally not market moving. Accordingly, the CAD/JPY pair is expected to remain within its channel, as no significant event risk is expected. However, with rising tensions in the Middle East, traders may start buying the Loonie to expose themselves to any gains by oil in the coming days, putting upwards pressure on the CAD/JPY pair.

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Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: instructor@dailyfx.com

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

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