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CAD/JPY Breaks Out, Next Stop 79.00?

Last updated 2/9/2012 1:19 PM EST (GMT -5) 0 Comments - Add your comment

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Matthew Weller

Technical Analyst, GFT

From a classic technical analysis perspective, the CAD/JPY has been acting very reliably over the past few months. The daily chart shows that rates broke out of a long-term symmetrical triangle pattern in late January, leading to a predictable rally up to previous resistance at 77.45. After a brief pullback, the pair broke finally broke above this resistance level earlier today. The strong breakout candle suggests that potential for a further bullish continuation, with room up to previous highs near 79.00.

A closer look at the 4hr chart reveals that rates have also eclipsed resistance near the Monthly R1 pivot at 77.48. Moving forward, the stiff resistance near 77.50 is now likely to provide support for the pair, meaning that  near-term pullbacks are likely to find a floor at this level. Meanwhile, bulls will try to push the pair up to the next Monthly Pivot level at 79.08. Unfortunately, buying opportunities near current market prices would not offer a favorable risk/reward ratio, but if rates pull back, we may see a better opportunity to take advantage of the bullish bias.

Specifically, traders could set a limit buy order at 77.65 (above previous-resistance-turned-support at 77.45) with a stop at 76.65 (under this week’s low) and a target at 78.90 (under previous / pivot resistance near 79.00). This trade would be invalidated by a rally above 78.50 prior to entry or if not triggered by the end of this week.

Potential Strategy: Buy if CAD/JPY pulls back to 77.65, stop at 76.65, target at 78.90.

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