Short CADJPY – Playing the Daily Sentiment
In this trading example we will be looking at a short CADJPY trade which took place on the 4th April 2016. This trade is an excellent example of how we can make pips by taking advantage of intermarket correlations between FX, equities, and commodities markets.
At the time of this trade, downside in equities and risk-off sentiment was supporting the Japanese Yen. On the same day, news was released that Iran had rejected an oil production ceiling and that they were determined to regain their share in the global oil market. The recent rally in oil, combined with the news that Iran would increase their oil supply lead to oil prices suddenly coming under pressure, and due to oil being one of Canada’s primary exports the Canadian dollar also became pressured.
From a technical perspective CADJPY was approaching a key level of support at the 85.00 handle, however given the strength in Yen and recent comments from Iran, it was unlikely that this level would hold and a break would open up further downside in the pair.
Therefore with the Japanese Yen supported by risk-off sentiment, the Canadian dollar pressured by comments from Iran, and the potential for further downside as a key level of support broke, shorting CADJPY was the ideal currency pair with multiple factors supporting the trade.
On anticipation that the 85.00 handle would not hold, the trade was entered just before. Half the trade was closed for 112 pips and the second half closed for just under 100 pips.