CAD/JPY came under strong selling interest during the European morning Wednesday, after finding resistance slightly below Tuesday’s peak of 81.54. The price structure on the 4-hour chart remains of lower peaks and lower troughs below the tentative downside resistance line drawn from the high of April 17th. What’s more, since May 1st, the downtrend accelerated, evident by a steeper downside line taken from the that day’s high. All that, combined with the fact that the rate is also trading below all three of our moving averages, paints a negative near-term picture in our view.
If the bears are willing to stay in the driver’s seat and push below Monday’s low, near 80.95, this would confirm a forthcoming lower low and could pave the way towards the 80.65 zone, defined by the inside swing high of January 2nd. If that area acts just as a temporary pit-stop for the bears to refuel, its break may lead towards the peak of the following day, at around 80.40.
Shifting attention to our short-term momentum indicators, we see that the RSI, already below 50, has turned south again, while the MACD, although above its trigger line, shows signs of topping within its negative territory. Both these studies detect downside speed and corroborate our view for some further declines.
In order to start examining whether the bears have decided to take a short break, we would like to see a clear recovery above 81.54. This would also bring the rate above the downside line drawn from the high of May 1st and could initially set the stage for Monday’s high of 81.82. Another break, above 81.82, could extend the recovery towards the tentative downside line taken from the high of April 17th, or the 82.05 barrier, marked by the peak of May 7th.
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