Top Trade Idea 2019: Bearish CAD/JPY – JPY Strength May Align With Global Risks After CA Data Turndown
- Spot: 85 JPY per CAD
- Initiation: Sell on Weekly Close < 80
- Target 1: 72.15 JPY per CAD (2011 low)
- Target 2: 68 JPY per CAD (2009 low)
- Invalidation: Weekly close above 83
Not all is well in the Great White North. Canada was particularly hard hit by the crude oil bear market of 2018. While many global investors look to the unified benchmark of Brent or the US benchmark in WTI, the price decline in Canada’s Western Select Crude from Alberta took a storybook tumble in 2018. The price of Canadian crude fell by ~76%, and alongside the fall in Canadian crude went Canada’s terms of trade, which is reading of the comparative value of exports to imports. In December, the Bank of Canada noted that the drop in crude was greater than expected and would and that rates may now be appropriate, which caused Goldman Sachs to drop their rate hike expectation in January.
Data source: Bloomberg, Citi
While the above portends Canadian Dollar weakness, The Land of the Rising Sun’s story could bring unwelcome strength to the JPY. Two thousand nineteen is the anticipated year of monetary policy tightening by the Bank of Japan. Not necessarily because things are great, but because Japan is running out of assets to buy to stimulate the economy. In November, numbers came to surface showing that the Bank of Japan’s Total Asset Holdings had surpassed the size of Japan’s GDP when their assets reached 553.6 trillion yen ($4.9 trillion) against a nominal seasonally adjusted GDP of 552.8 trillion yen.
The Opportunity: Bearish CADJPY on Break < 80
The Chart: Lower Highs & Momentum Divergence Favors CAD/JPY Downside Continuation
Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT
Honorable mention: Bearish EUR/JPY as Europe’s problems may prolong with Italian budget, French debt, and Brexit.
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