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Canadian Dollar May Reverse Lower Against the Japanese Yen

Canadian Dollar May Reverse Lower Against the Japanese Yen

2019-10-21 07:52:00
Ilya Spivak, Head Strategist, APAC
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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.

Canadian Dollar vs Japanese Yen price chart - weekly

Weekly CAD/JPY chart created with TradingView

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.

Canadian Dollar May Reverse Lower Against the Japanese Yen

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.

CAD/JPY TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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