- In my daily analysis of the CAD/JPY pair, I’ve noticed that although we initially did pull back just a bit, the buyers came in to pick up this market and show signs of life again.
- It’s also worth noting that there is a significant amount of technical analysis that could continue to push this market to the upside, and of course we have the interest rate differential that will continue to favor the Canadian dollar over the Japanese yen anyway.
- For what it is worth, on Friday we received the Retail Sales number at 0.4% in Canada month over month, exactly as expected. In other words, the interest rate differential should continue to be a driver of this market.
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Multiple Reasons of Bullish Behavior to Continue
There are multiple reasons for bullish behavior to continue in the CAD/JPY exchange pair, not the least of which would be the swap payment at the end of every day. After all, the interest rate differential between the currencies is fairly wide, but it’s also worth noting that the Canadian dollar does not offer the same type of interest rates that it used to. In other words, this will probably be more of a grind higher than anything else. There will be other currencies out there that do much better against the yen, but this one is particularly unique due to the fact that it is also highly sensitive to the crude oil market. After all, Canada is a major exporter of crude oil, while the Japanese have to import 100% of theirs. This is the closest thing to a pure oil play that I can think of in the FX markets.
There is also the technical analysis that favors this pair as well. The 200 Day EMA sits just below the crucial ¥110 level, just as the 50 Day EMA sits just below it. Speaking of those moving averages, we are getting close to the so-called “golden cross”, when the 50 Day EMA breaks above the 200 Day EMA. At this juncture, if we do rally, I think we have to pay close attention to the ¥112 level, due to the fact that the area has been important multiple times, and therefore I think if we do break through there, the so-called “market memory” gets shattered and we will have a big FOMO trading kickoff in that area.
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