Trade Recommendation: CNY/JPY
The Chinese Yuan/Japanese Yen (CNY/JPY) pair showed signs of weakness in November 2015 when it generated a lower high of 19.418. The bearish price action was a strong signal that the bull run was over. The pair then broke 18.70 support in December 2015. This triggered the head and shoulders reversal pattern on the weekly chart.
The reversal coincided with a powerful third wave down that saw the pair nosedive to 14.997 in July 2016. Fortunately for bottom fishers, the pair has been rallying since. It is actually creating a series of bullish higher low setups in an effort to restart its uptrend.
Technical analysis show that the CNY/JPY pair has completed a five-wave down. It is now in the process of reversing its trend with a corrective ABC pattern. The reversal was ignited by a strong A-wave rally to 17.517 in February 2018. The B-wave down generated a higher low of 16.55 in March 2018. The market is currently above 17 thanks to an ongoing C-wave.
In addition, these price movements coincide with a cup and handle reversal structure on the weekly chart. The move above 17 should help the market attract momentum from breakout traders and trend followers.
The strategy is to buy as close to 17 as possible. As long as bulls hold on to the support, they have the momentum to reach our target of 19.
The process may take more than six months.
Weekly Chart of CNY/JPY
As of this writing, the Chinese Yuan/Japanese Yen pair is trading at 17.239.
Summary of Strategy
Buy: As close to 17 as possible.
Featured image courtesy of Shutterstock.