The CAD/JPY has fallen to pierce the ¥108 level during the trading session on Friday, as traders went home to sit through the weekend. The market is likely to continue seeing upward pressure in the longer term, but it’s also worth noting that the Canadian dollar is highly sensitive to crude oil markets as well. The market will continue to be very noisy as the Japanese yen is certainly oversold. Ultimately though, you need to pay close attention to several levels underneath that could come into the picture.
The 50-Day EMA underneath offers plenty of support, sitting near the 160 and level. The market will continue to find plenty of buyers underneath to take advantage of the longer-term trend, but everything has gotten a little bit overdone. The ¥105 level would be the first thing that I would look to for signs of support as well. Keep in mind that the Canadian dollar is also getting a bit of a boost since the Bank of Canada has been aggressive in raising interest rates. At the same time, the Bank of Japan has been very loose with its monetary policy and has been buying bonds to engage in quantitative easing.
Avoid Shorting this Market
- Interest rate differentials are climbing, so now the question is whether the Bank of Japan will remain just as aggressive as it has been in buying bonds, which means that it will become even looser with its monetary policy.
- It’s a little early to make that decision, but it certainly looks like that might be the choice they have to make.
- The candlestick is not necessarily a big deal, it’s just a sign that we are letting up on the pressure a little bit.
The ¥110 level has offered a significant amount of resistance, and it is of course where we recently put in a fresh high. The ¥110 level is a large, round, psychologically significant figure that a lot of people will be paying close attention to as well. At this point, you need to look for some type of value to take advantage of, and then get value in currencies other than the Japanese yen anytime it’s offered. At this point, it’s difficult to imagine shorting this market, but a little bit of patience probably goes a long way.
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