The 4-hour chart reveals the CADJPY moving sideways since late August. Aside from the August 24 spike low at 87.43, the price ranged between 88.81 and 92.43 through late-August/September. In October the price broke above the September range but failed to advance. As of November 3 the price is back inside the old September range moving within a descending channel since the October 9 high at 93.26.
CADJPY Short Trade
A short trade is considered currently because the price is near the top of a multi-month range, and is also near the top of a short-term descending trend channel. The long-term trend is also down.
Short entry is near 92.25, with a Stop Loss at 92.54 (if your spread is larger than two pips, increase the stop loss by the spread you pay over and above two pips) and a Target at 91.32. With the price currently trading near 92.10 a small pullback is required to the entry price. The trade offers a 3:1 reward to risk.
The Target is toward the lower-middle of the current descending trend channel. A more aggressive Target is near the bottom of the channel at 90.75, or even slightly below the October 28 low of 90.58. The reason for putting the Target more toward the middle of the channel is that we have Employment data out of CAD (and US) on Friday. While that is a few days away, being out of the trade before the news and the weekend is preferred. Therefore a conservative target is used to help facilitate a speedier exit.
Also, the short trade results in a negative interest rate rollover. Since the trade shorts the CAD (the higher interest rate currency) and goes long the JPY (lower interest rate currency) each day the trade is held will result in a small interest rate loss.
What If It Breaks Higher?
Always a possibility. If price rallies above the Stop Loss it will break out of this small descending channel. That doesn’t necessarily mean it is time to go long though. If the price rallies back above the October 9 high of 93.26 and we see some strong movement to the upside, then an uptrend is likely underway. Then, the best opportunities will come from waiting for a pullback to an ascending trendline (or Fibonacci retracement level). So based on the current rangy nature of the pair, and the longer-term downtrend, it will be some time before a long trade is taken. That doesn’t mean the price won’t move higher; it may, and if it does then we can start looking for long trades…but not before.
On Friday CAD releases employment data (as does the US). That will cause some volatility in the pair. Whether it will jar the price out of the current channel or range is unknown. For this trade it is likely best to be out of the trade before the news hits (hence the more conservative target).
Disclaimer: Author has CADJPY orders as per above.