By: Christopher Lewis
The CAD/JPY pair fell on Friday as the oil markets slowed down. The pair can often follow the crude markets, and as those markets are looking a bit stagnant, this pair has the ability to fall. It is a matter of simple supply and demand most of the time, as the Canadians export oil, and the Japanese import 100% of their oil.
However, there are some signs that the pair is decoupling from the oil markets. The headline risks out there will continue to pressure “risky currencies” such as the Loonie, and the Yen is one of the world’s favorite safe haven currencies. The pair is also known to follow the S&P 500 at times, something it can do for long periods of time.
The pair has been going sideways for quite some time, and the nonsense that has been going on in the Persian Gulf could be part of the reason. The European Union and United States both are suggesting a block on the Iranian central bank which would effectively punish countries that buy Iranian oil. (As a side note, the Iranian Rial has lost over 40% of its value in the past week.) In turn, the Iranians are threatening a blockade of the Strait of Hormuz. This would cause a massive spike in the price of oil, and a run to Canadian dollar would be massive.
Canadian Dollar Could Get Punished
The Canadian dollar is starting to lose a little steam against most currencies with the exception of the Euro. The CAD/JPY pair saw the 50 day EMA come into play on Friday to act as resistance. The pair fell and ran straight to the 75 support level. The blue moving average is the 100 day moving average, and as you can see it is starting to catch up with price.
The 75 level should be very important for the near-term movement of this pair. The level has been tested several times, and most of the time will offer some kind of reaction. The daily close below the 75 level would signal a further move down in this pair which would also jive well with the overall trend. The breaking of that level should see this pair run to the 73.50 level. As the highs are getting lower, I believe a break of the 75 level is to be sold, as are rallies.