Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

CAD/JPY: Better Pair For Bulls Ahead Of Bank Of Canada Rate Decision

Published 11/07/2017, 05:31
Updated 18/05/2020, 13:00

The new week started slowly as government bond selling took a breather. Consequently, stocks bounced back, which resulted in further weakness for perceived safe-haven gold and silver. However, equity indices in Europe were coming off their best levels.

In FX markets, the dollar rose on Friday on the back of a stronger US employment report and the greenback was touch firmer at the start of this week. But with no significant change is the market’s view for interest rate changes in the US, the dollar may struggle to gain further momentum because sentiment is still pretty much bearish in the short-term outlook. Could Yellen’s testimony in mid-week or US data (CPI and retail sales) on Friday change that view? Tomorrow is also a key day for the British pound and the Canadian dollar – because of the release of UK wages data and the Bank of Canada’s key rate decision.

Bank of Canada looks set to raise rates by 25 basis points

Officials at the Bank of Canada surprised the markets by delivering significantly hawkish remarks in recent weeks. As a result, speculation over a rate rise has risen sharply. Most analysts believe a 25 basis point increase will be announced this Wednesday, which would put the main overnight rate at 0.75% from its current level of 0.50 per cent. Is there still room for the Canadian dollar to gain, or is the move now priced in? That’s the key question and one way to look for answers is by studying the CAD’s price action around key technical levels. For example, if some key resistance level holds the USD/CAD down then we may see further strength for CAD ahead of Wednesday’s rate decision. However, if resistance levels on USD/CAD start to break down then this would point to profit-taking from the existing CAD long holders. Of course, how the CAD will behave on Wednesday is impossible to say at this stage but a rate rise should still support it, one would think.

CAD/JPY possibly better pair for CAD bulls than USD/CAD

But for us, the CAD/JPY may be a better pair to watch or potentially trade ahead of the BoC rate decision, than USD/CAD. With USD/CAD falling and USD/JPY rising, the CAD/JPY has had a stronger upward trend than the USD/CAD has had a downtrend. But this also makes the former a more overbought pair than the CAD/USD (USD/CAD inverted). Still, trends are more likely to carry on than reverse at any given moment in time.

That being said, the nearest support level on CAD/JPY is somewhat far from where price is trading at the moment: at around 87.50, which was the last resistance level prior to the latest break higher. Given the strength of the current trend, price may struggle to pull back that far before potentially pushing higher. But the RSI has reached overbought levels. An alternative scenario may be this: the CAD/JPY breaks above the prior swing high at 88.90 area cleanly, then pulls back to re-test this level. If support here holds on the potential re-test then in this scenario we may see a continuation towards the 127.2% Fibonacci extension level next, at 91.20. Meanwhile all bets would be off if the 87.75 support level gives way and then 87.10 also breaks. This would technically end the short-term bullish bias as we will then have our first lower low.

CADJPY Daily Chart

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Original post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.