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CAD/JPY Scalp- Limited Event Risk

CAD/JPY Scalp- Limited Event Risk

2011-05-31 20:07:00
Michael Boutros, Technical Strategist
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CADJPY_Scalp-_Limited_Event_Risk_body_Picture_2.png, CAD/JPY Scalp- Limited Event Risk

The CAD/JPY pair currently presents an opportunity for scalp traders after the loonie surged on today’s Bank of Canada rate decision. Although the central bank left rates unchanged at 1.00%, the subsequent remarks hinted that growth was in line with expectations and that “eventually” the bank will need to withdraw some of the stimulus measures implemented at the height of the recession. The statement added that “such a reduction would need to be carefully considered,” highlighting the wait-and-see approach taken by officials in response to rising inflationary pressures and a stronger domestic dollar.

With limited event risk for the next few days, the pair should continue to consolidate after today’s 150 pip move. The pair is expected to remain range bound as it consolidates into the descending triangle formation that dates back to May 5th. Targets for this scalp are derived from the Fibonacci extension taken from the May 11th and 19th crests. The 38.2% and 61.8% extensions provided a well defined range last week which the pair continued to trade between for five consecutive sessions. That said, scalps are favored to downside, noting preferred entry targets at 84.20 and the 84-handle. Downside targets are held at 83.80, at the 50% extension at 83.65, and the 61.8% extension at 83.35. A break below this level eyes targets at the 76.4% extension, just below the 83-figure.

Topside resistance is eyed at the 23.6% extension at 84.35 backed by the upper bound trendline, currently at 84.50. With an average hourly true range of 26 pips, profit targets for this particular scalp should be between 15-20 pips depending on entry. The time frame on this scalp is open until such time when either of the support/resistance trendlines are compromised.

CADJPY_Scalp-_Limited_Event_Risk_body_Picture_3.png, CAD/JPY Scalp- Limited Event Risk

Key Thresholds

A breach above the upper bound trendline negates the trade, with a confirmed break of 84.65 eyeing topside targets at the 85-handle and 85.30. Likewise, a break below the lower bound trendline puts the scalp on pause, until a confirmed break of the 100% Fib extension at 82.35. Such a scenario would see longer-term shorts targeting the 161.8% extension at 80.70.

Indicator

Timeframe

Level

Fibonacci Extension – 23.6%

4hour

84.35

Fibonacci Extension – 38.2%

4hour

83.97

Fibonacci Extension – 50%

4hour

83.66

Fibonacci Extension – 61.8%

4hour

83.35

Fibonacci Extension – 76.4%

4hour

82.97

Fibonacci Extension – 100%

4hour

82.35

10-SMA

Daily

85.04

20-SMA

Daily

85.80

50-SMA

Daily

85.01

100-SMA

Daily

85.05

RSI

Daily

47.28

Resistance 1 Target

30min

84.35

Resistance 2 Target

30min

84.50

Topside Limit

30min

84.65

Topside Limit Break-Targets

30min

85.00

Support 1 Target

30min

83.66

Support 2 Target

30min

83.35

Bottom Limit

30min

83.00

Average True Range

1hour

25.96

Related Economic Data Releases

With no economic data of notefrom either country for the rest of this week, event risks to the trade should be limited. However, Australia’s GDP report released tonight could see renewed haven flows which would undoubtedly see the pair lower as the yen tends to gain on risk aversion, while the relatively high-yielding loonie would come under pressure. Although consensus estimates are calling a contraction of 0.3% q/q, a worst than expected print could see today’s pick-up in risk appetite quickly fade.

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Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter@MBForex

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

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