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CADJPY Scalps Favor Selling Rallies Post Key Support Break

CADJPY Scalps Favor Selling Rallies Post Key Support Break

2014-01-23 20:24:00
Michael Boutros, Strategist

Talking Points

  • CADJPY breaks key technical support
  • Medium-term bias backed by fundamental outlook
  • Broader outlook remains weighted to the downside sub-95.78

CADJPY Daily Chart

Forex_CADJPY_Scalps_Favor_Selling_Rallies_Post_Key_Support_Break_body_CADJPY_DAILY.png, CADJPY Scalps Favor Selling Rallies Post Key Support Break

Chart Created Using FXCM Marketscope 2.0

Broader Technical Outlook

  • CADJPY breaks multiple trendline support structures
  • We’ve now taken out the last 6-month range in past 3.5 weeks
  • USDCAD confirms topside breakout- constructive
  • Technical outlook now supported by fundamentals
  • Key support objective 91.32/85 range (Fib support / June low)
  • Subsequent support targets at 89.88 – 90.00 & 88.28/49
  • Scalp bias bearish below 93.58- Broader outlook bearish below 95.78 (200DMA)
  • Note RSI breakdown sub-40 for the first time since early August
  • First directional break sub-30 since early June- bearish
  • Event Risk: Canadian CPI data Tomorrow

CADJPY Scalp Chart

Forex_CADJPY_Scalps_Favor_Selling_Rallies_Post_Key_Support_Break_body_CADJPY_SCALP.png, CADJPY Scalps Favor Selling Rallies Post Key Support Break

Notes: The CADJPY has broken some key support targets this week and the technical damage done keeps our focus weighted to the downside. It’s been a tough month for the pair with a decline of more than 6.7% since the start of 2014 trade and while some indicators may look quite stretched here it’s important to note that in strong directional trends momentum gauges can remain so for some time. Note that a few topside triggers are pending on the 30min which would take us out of short exposure and offer more favorable entries.

A key topside break in the USDCAD and a more dovish tone from the BoC continue to support further CAD weakness. Meanwhile the BOJ has continued to sound more upbeat with Governor Kuroda noting that the 2% inflation target might be attainable by late 2014. Lending further validation is massive outside day in the USDJPY today which has taken out the weekly opening range high & low in one swift move. The combination of loonie weakness and near-term yen strength remains the play here- but be warned: the snap-back on these can be radical.

Near-term focus remains on the short-side while below the 93.41/58 resistance region. This range is defined by the 61.8% extension from the decline off the 2013 high, the November low and former trendline support dating back to June. Look for a reaction in the 91.30/85 region where more significant support is eyed. Keep in mind that all the downside targets highlighted here are major technical thresholds, each of which could produce a more meaningful recovery.

Bottom line: We’ll look to sell rallies/breaks of support with only a breach above 93.41/58 shifting our immediate bias to neutral. Such a scenario looks for short conviction around the weekly opening range low at 94.71/79. On a larger scale the pair is now testing support of a broader range carved out since the May 2013 highs with each subsequent support break building the case for our medium-term outlook. Follow the progress of this trade setup and more throughout the trading week in DailyFX on Demand.

* It’s extremely important to give added consideration regarding the timing of intra-day scalps with the opening ranges on a session & hourly basis offering further clarity on intra-day biases.

Key Threshold Grid

Entry/Exit Targets

Timeframe

Level

Significance

Resistance Target 1

Daily / 30min

93.05

61.8% Fib Extension

Resistance Target 2

30min

93.24

61.8% Retracement

Bearish Invalidation

Daily / 30min

93.41/58

61.8% & 50% Exts / November Low

Break Target 1

30min

93.85

Soft Resistance / Pivot

Break Target 2

Daily / 30min

94.13/21

38.2% Fib Ext / 23.6% Retrace

Break Target 3

30min

94.40

Soft Resistance / Pivot

Break Target 4

Daily / 30min

94.71/79

23.6% Ext / 50% Retrace / Weekly ORL

Break Target 5

Daily / 30min

95.56

Weekly ORH

Break Target 6

Daily

95.73/78

100 & 200DMAs

Bullish Invalidation

30min

92.25/28

78.6% Fib Ext / August Lows

Break Target 1

Daily / 30min

91.78/85

78.6% Ext / June Low

Break Target 2

Daily / 30min

91.15/30

78.6% Retrace / 100% Fib Ext / April Low

Break Target 3

Daily

89.88 - 90.00

100% Fib Ext / 38.2% Retracement

Break Target 4

30min

88.28/49

161.8% & 61.8 Exts / Feb Low

Average True Range

Daily (20)

86

Profit Targets 21-23pips

*ORH: Opening Range High

*ORL: Opening Range Low

Other Setups in Play:

---Written by Michael Boutros, Currency Strategist with DailyFX

For updates on this scalp and more setups follow him on Twitter @MBForex

To contact Michael email mboutros@dailyfx.com or Click Here to be added to his email distribution list

Join Michael for a Live Scalping Webinar next week Monday-Thursday morning on DailyFX Plus (Exclusive of Live Clients) at 1630GMT (11:30ET)

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