- The CAD/JPY has rallied a bit during the Monday session to test the 50-Day EMA and the ¥160 level.
- This is a market that is trying to figure out where wants to go next, but the one thing for certain is that the Bank of Japan will keep its loose monetary policy going.
- Because of this, one would assume that sooner or later we will see the yen selloff again, but do not forget that we recently had seen the Bank of Japan step in and defend the currency.
That has a lot of traders concerned, but the history of central bank intervention is one of failure most of the time. This is because the moves aren’t designed to reverse the trend, only slow it down. Central banks can deal with the volatility and a falling currency, but what they cannot deal with is a crashing one.
With this in mind, I do believe that the market will continue to be very noisy, and therefore it will be very difficult to gauge your various risk parameters. The Canadian dollar has a strong correlation to the crude oil market, so therefore you should probably pay attention to that as well. Regardless, this is about the Japanese yen being sold off, and that will continue to be where we go from here.
Interest Rates Differential Likely to Hinder the Yen
The ¥107.50 level is an area that has been imported previously, and therefore it’s likely that we will see this as a scenario where you are buying dips, as long as we can stay above the ¥104 level. Below there, the Canadian dollar could find itself reaching the 200-Day EMA, which is currently sitting at about ¥101. The Bank of Japan has not shown any interest in trying to dial back its bond purchases, and as long as that’s going to be the case, the Japanese yen is good to be very difficult to own. The Bank of Canada has its own issues obviously, but at this point, it appears that people are paying more attention to Japan than anything else. A break above the ¥110 level could bring in a new rush of buying going forward. In the short term, it looks like we are stuck in a little bit of a tight consolidation area, which is not a huge surprise considering that people are starting to rethink global growth.
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