Canadian Dollar May Reverse Lower Against the Japanese Yen
CAD/JPY TRADING Strategy: BEARISH
- Canadian Dollar testing two-year trend resistance versus Japanese Yen
- Near-term positioning suggests a reversal downward is brewing ahead
- Fundamental backdrop appears to be supportive of a bearish scenario
Check out our Q4 Japanese Yen forecast to see what will drive the price trend through year-end!
The Canadian Dollar bounced after testing support a rising trendline support capping losses against the Japanese Yen for over a decade. Prices are now testing the bounds of the more recent downward push initiated in early 2018. The outer layer of resistance is currently at 83.67.
A break above this barrier would threaten to fundamentally alter the dominant directional bias, marking a major bullish reversal. Zooming in to the four-hour chart suggests rejection downward may be emerging as the more likely path however.
Recent price action has carved out a bearish Rising Wedge pattern. This long with acutely negative RSI divergence appears to suggest that upside momentum is ebbing, which might set the stage for a downturn. Breaking through the wedge floor would act as confirmation, initially exposing the 81.73-83 zone.
4-hour CAD/JPY chart created with TradingView
The fundamental backdrop seems consistent with a downside scenario. The down move started in 2018 is consistent with a peak in global economic growth and subsequent slowdown. This makes sense for the pairing of a cycle-sensitive “commodity” currency like the CAD with the anti-risk Yen.
The latest economic forecasts from top central banks, private-sector economists and the IMF all point to continued deceleration. Meanwhile, a slew of political risks from the US-China trade war to Brexit uncertainty tip the scales in favor of a broadly risk-off bias.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.