CAD-JPY - A Possible Head And Shoulders

By: Mike Kulej

The hourly chart of the CAD-JPY is developing a possible “head and shoulders” formation. It is a reversal pattern, which forms after an uptrend and indicates a trend reversal. Since this is happening on the hourly chart, implications are short term.
The “left shoulder” formed at around 89.00 price level, after which the price dropped to 88.00. The uptrend resumed, with the CAD-JPY reaching 89.80. That created the “head”, a central part of this pattern, followed by a pullback to 88.00, undercutting the previous low by 1-2 pips, depending on the trading platform. Drawing a line between the two lows marks a “neck line”, which is a critical component of this formation. Currently the price is above 89.00 and behaving as if building the “right shoulder”.
At this point it is unknown if the formation will be completed. Only breaking of the neckline, under 88.00, will confirm the head and shoulders. However, if that happens, this could present a good trading opportunity. The downtrend could continue to 87.00 or maybe even 86.50.  The head and shoulder pattern tends to be more reliable than many other chart formations and is worth paying attention to.