Trade Recommendation: CAD/PHP

The Canadian Dollar/Philippine Peso (CAD/PHP) pair started to look bearish when it generated a lower high of 45.595 in April 2011. The downtrend was confirmed in October 2012 when the pair broke support of 42. This activated the double top reversal pattern on the monthly chart.

The reversal triggered a selling frenzy that saw the market plummet to as low as 32.625 in January 2016. In about five years, the Canadian Dollar lost over 28% against the Philippine Peso.

At this price level, the pair was flashing reversal signals. A bullish divergence on the RSI can be spotted on the monthly chart. In addition, the monthly candle was a long hammer. This indicates the presence of bulls below 34. These signals attracted bottom fishers to enter the market. Their buying activity ignited a rally that pushed the pair to 42.222 in September 2017.

Interestingly, 42.20 is the 61.8% Fibonacci level. This indicates that this level is a firm resistance. As a result, the rally was met with a strong pullback that sent CAD/PHP down to 38.979 in December 2017. Bulls responded by making 38.979 a higher low. The setup gives us reason to expect that the pair is about to turn bullish soon.

Technical analysis show that the Canadian Dollar/Philippine Peso pair is positioning to take out the 61.8% Fibonacci level as seen on two emerging patterns. The first one is the inverse head and shoulders pattern on the monthly chart. The second is the symmetrical triangle pattern on the monthly chart. Both reversal structures are conspiring to breach 42.20.

The strategy is to bottom pick the market and buy as close to 40 as possible to maximize returns and minimize risk. As long as the pair stays above 40, it has all the momentum it needs to take out 42.20 and climb to our target of 48.

The process may take more than six months.

Monthly Chart of CAD/PHP

As of this writing, the Canadian Dollar/Philippine Peso pair is trading at 40.557.

Summary of Strategy

Buy: Buy as close to 40 as possible.

Target: 48

Stop: 38.979

 

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.