- The Canadian dollar initially fell on Wednesday to reach down toward the ¥104 level.
- The ¥104 level is an area that has been previous support, soit’s not a huge surprise to see this market turnaround and show signs of life.
- In fact, by the end of the day, the pair ended up forming a bit of a hammer, which is telling considering that the crude oil market recovered quite nicely as well.
The 50-day EMA is at the ¥103 area and rising, and because of this, it’s very likely that we continue to see more of a “buy on the dips” type of attitude. This is especially true considering that the Bank of Japan is doing everything it can to work against rising yields, thereby essentially buying as many bonds as it takes. That is the same thing as printing currency hand over fist, so we should continue to see the Japanese yen suffer as a result.
Pay Attention to Crude Oil
However, you should keep in mind that the Canadian dollar is highly levered to the crude oil markets, so pay attention to how they are behaving to get a feel for how the Canadian dollar will do. In other words, if the crude oil market recovers, then it’s likely that we would see the pair do quite well. However, if oil takes a bit of a dip, it could either turn this market around and make a breakdown, or it may work against the upward momentum.
This looks like a market that is trying to do everything it can to show signs of life, and I think we continue to consolidate back and forth. The 50-day EMA might be reason enough for people to get long, but really at this point, I think what we are seeing is the market trying to chip away at the ¥106 level. The attitude of the market remains very noisy, so you should be very cautious about your position size. Regardless, it certainly looks as if we are going to go higher than lower. However, if we were to break down below the ¥100 level, that could change a lot of things as it would almost certainly have a certain amount of psychology working as well.
