11 Mar CAD JPY – Still Waiting For A Short Entry For W/C 12th March 2012
CAD:JPY was covered in last Weekend’s Analysis which can be found here.
Shorting runaway trains isn’t something I generally make a habit of but once in a while something will come along showing technicals that can potentially justify entering a position very early in a topping process and CAD:JPY might be one of those candidates.
Although last Week’s analysis still stands, the sharp sell off seen in the early part of last Week was not indicative of a final top being in place but the sharp rally in the latter part of the Week has taken us closer to the levels I’ve been waiting for ahead of a potential reversal of trend.
Daily chart shows a break of the 61.8% Fibonacci retrace aligning with a previous price congestion area whilst a failure to make further progress as MACD crosses up would give our first sign of MACD negative divergence; a powerful force when this occurs on the daily time frame in addition to other technical resistances.
In a worst case scenario any short entry over the coming days, even if proven to be wrong, is likely to offer a get-out route in the form of a retest of the 61.8% Fib level as price hunts for new areas of support. If strong support is offered we can look to cut the trade without taking a loss.
The Weekly candle capped it’s highs right at the falling resisting trend line and whilst it’s quite likely we will see a break-out attempt, it’s equally likely the 200 MA will find sellers offering an ideal scenario of next Week’s candle body being confined within the limits of the falling trend line and nothing more than a protruding tail at the 200 MA.
There are a huge number of ifs and buts when looking to trade against what has been a powerful bullish move, but in the bigger picture the long term trend remains down and if that long term trend is to continue, now is the time to have your eyes on this pair ready to take advantage at the best possible entry levels.
Finally I just want to point out the obvious in that trading an FX pair against the main trend is a very risky strategy as these runaway trains can continue well beyond your levels of margin! This type of trade is never going to be one I’d vocally recommend to others, but it’s a set-up I have a good eye for and before entering a position I’ll be looking for confirmation on shorter time frames to begin with and I’m quite comfortable with exiting such a trade for a small loss at the first instance of any doubts setting in.