The Canadian dollar rallied significantly on Friday yet again, forming the eighth positive candlestick in a row on the daily chart. In fact, the pair is testing the ¥104 level and certainly looks as if there is no real negativity to be found. It is likely that there will be more than enough buyers for any type of dip that comes along, much like the crude oil market itself.
The 102 yen level previously has been resistant, and it should now be supportive. This is based upon market memory, and I think a lot of technical traders are waiting for that opportunity. Furthermore, you can make an argument that we just broke out from a bullish flag, which should not be a huge surprise. At this point, I suspect that if we were to break it down from here, the ¥100 level is a large, round, psychologically significant figure, and an area that will attract a lot of attention. The 50-day EMA is reaching toward that area as well, so I think it’s likely that we will see a lot of buyers on dips, and it is not until we break down below the ¥98 level that I think the trend would change.
Keep in mind that the CAD/JPY pair is a great way to play the oil market, as Canada is a major exporter of crude oil, while Japan imports 100% of its crude oil. Ultimately, as crude oil rises and demand picks up, demand for those Canadian dollars strengthens. At the same time, we have the Bank of Japan printing the yen as they are fighting rising rates in the bond market, so it’s a bit of a “perfect storm” for this pair. I think we have much further to go but we may need to get a little bit of a pullback in order to find value.
Based upon the bullish flag, we could be looking at a move to the ¥112 level, but that would be a longer-term call, so it will take quite some time to make that play out. Regardless, this is a market that I think will continue to see volatility, but there is almost no way in which I would be a seller of this market based upon how much strength I see.
