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The Canadian dollar currency is starting to consolidate around the 87.00 level against the Japanese yen, despite a recovery in oil prices and a decrease on risk-off market sentiment since last Friday.
Relatively stability in the Japanese yen currency has meant that the CADJPY pair is heavily driven by the Canadian dollar at this juncture. This trend only looks set to continue until a significant bullish or bearish catalyst emerges.
Looking at the Canadian dollar, the Loonie has failed to react to a recovery in oil prices this week. This provides a further ominous sign that more weakness in the CADJPY pair could be on the horizon.
A reg flag has emerged on the charts over recent weeks that a big down move could also be about to happen. The pattern in question is a huge head and shoulders pattern pointing to a 500-point drop.
The CADJPY can be seen as a proxy for risk and also oil price. Should we see risk-off market sentiment come back as a dominate theme it is likely that the mentioned pattern could be activated to the downside.
It should be noted that retail sentiment data currently shows that there is a major one-way bearish skew towards the CADJPY pair right now. The ActivTrader Market Sentiment tool shows that some 71 percent of traders are bearish towards the CADJPY pair right now.
This is very encouraging for those finally looking for a bearish breakout in the CADJPY pair. Retail traders are on the right side of the trend, so it could mean they are correct about a coming price breakdown.
CADJPY Short-Term Technical Analysis
The four-hour time frame shows that the CADJPY pair has formed a fairly sizable head and shoulders pattern, which will be activated if the price drop under the 86.50 area this week.
Looking closer at the pattern and measuring from neckline to head, it indicates that a 200-point move will take place once the price breaks under the 86.50 support level.
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CADJPY Medium-Term Technical Analysis
Looking at the daily time frame the CADJPY the overriding theme is a massive head and shoulders pattern that looks almost complete from a structural standpoint.
A move under the 86.40 level is required to activate this pattern that indictes that a huge 500 point price drop towards the 81.00 area could then follow if bears take control.
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