By: Mike Kulej
A lot has been made recently about the Canadian Dollar reaching parity with the US Dollar. Upon closer inspection, however, that has more a result of a weakness in the USD than a genuine strength in the CAD.
In reality, during the past few weeks, the Canadian Dollar slipped against many other currencies. One of them is the Japanese Yen. Following the Bank of Japan intervention, the CAD-JPY reached a high of 84.05, before starting its current decline. It is not dramatic, but this pair has fallen over 300 pips in a month.
On the intermediate time frame (4H chart), it slipped under the 100 SMA, always a negative sign. Both the 100 SMA and the down trendline provide a strong resistance and define the downtrend until the price moves above them. Right now the, CAD-JPY also shows a support at 80.20. Given that the price is in a downtrend, chances are that this support will be broken. If this happens, the next important support level, at 78.40, is likely to be re-tested.
To confirm the validity of the move under 80.20 (if it indeed takes place), one could use either the MACD or the Momentum indicator. When close to neutral readings, as they are right now, these indicators tend to be reasonably good tools for confirmation of breakouts.