CADJPY Countertrend Setup (Oct 30, 2014)

Resistance at the 97.50-98.00 area might hold and push the pair back to the bottom of the channel.

Stochastic is already in the oversold area, which means that buying pressure is about to wane soon. If this happens, reversal candlesticks might form at the channel resistance, which would be interpreted as a sign that the recent climb is over.

Shorting at 98.00 with a stop at 98.50 and a target at the channel support around 96.50 could yield a good reward-to-risk for a short-term countertrend play. If you’re bullish on this pair, you might be better off waiting for a test of channel support and a potential bounce back up to the top of the channel.

There are no major event risks for this setup since there are no economic reports due from Japan or Canada. Risk sentiment might drive price action for the time being, with the latest FOMC statement giving an upbeat assessment and helping support risk appetite.

By Kate Curtis from Trader's Way