Market Divergence

We have an interesting situation that I like to call Market Divergence.

I would like to address an interesting situation regarding divergence and market structure. When people think of divergence, most think of the use of oscillators and indicators. But divergence can be more than just an oscillator not agreeing with price or vice versa.

JPY pairs tend to move in lockstep. That means, if EUR vs JPY moves north, normally USD vs JPY moves north as well. We'll have the other JPY pairs move north too. This behaviou is something I really like to utilise. If I am not sure about a setup, I look at the other JPY pairs to gauge the setup I am eyeing originally.

Below we have CAD vs JPY.

Price did move higher making me think we might break resistance. While CAD vs JPY is moving higher, we have NZD vs JPY moving lower.

This is divergence. Both should move up or down together. My bias was bearish for the week ahead. Move north with CAD vs JPY did diminish the bearish bias. However the existing divergence makes me hold onto my bias. I need a weekly close to to finally eliminate my bias. But I am less likely to take a trade if my bias is not holding true. Anyway. Coming back to topic. Currently we have a nice setup in progress. Either CAD vs JPY is going to resume it's bearish move, or NZD vs JPY is going to correct its move. CAD vs JPY not being able to break resistance puts weight for a bearish developement.

Edit: I went short on CAD vs JPY. You can find it here.

Happy trading,

TT