Key Points:
- Approaching a robust zone of resistance.
- Stochastics are highly overbought.
- 100 day EMA remains in decline.
For those following the exotic markets out there, the CAD/JPY could be worth keeping an eye on over the coming days. Specifically, the pair is moving steadily towards a highly robust zone of resistance which could spark a sharp downturn if it fails to breakout to the upside. However, given the ongoing weakening of the JPY, fundamentals could play a large role in driving this pair’s price in the coming days.
As shown below, there is currently a confluence of technical events which makes a reversal look rather probable. One key factor indicating that the CAD/JPY is set to reverse is the wedge formation, the constraints of which have proven rather resistant to breakouts. However, this is not the only long-term trend presently impacting the pair. As is also shown below, the CAD/JPY has been broadly following the trend lines of an Andrews’ pitchfork lowerover the past weeks.
What’s more, the pair’s rally has brought it to a point at which the upside constraint of the wedge and the first lower pitchfork trend line intersect. In addition to this, this point also coincides with the 23.6% Fibonacci retracement and a historically strong zone of resistance. Combined, these factors make it easy to see why we expect to see resistance hold firm around this level. However, to understand why a rather strong decline should take place we must look at two other technical indicators.
Firstly, whilst looking at the daily EMA activity might at first suggest that bullish crossover is signalling that the uptrend should continue moving forward, the 100 day EMA tells a different story. As a result of the long-term bearish bias present on the moving average, we expect to see the EMA continue to exert downward pressure on the CAD/JPY and subsequently fuel its decline. The second factor which should encourage a slip for the pair is the recent movement of stochastics into highly overbought territory. As a result of said move, we expect sentiment to begin to shift which will add further momentum to any tumbles in the immediate future.
Ultimately, despite the technical arguments for a reversal, fundamental factors could still provide some upward momentum to the pair. In particular, the bevy of Canadian employment data that is due out as the week closes could see buying pressure remain steady throughout the session. Additionally, US results are likely to impact the pair as a poor showing could see traders swing back towards the JPY due to its safe haven status. As a result, keep an eye on the pair throughout the session and in the early stages of next week as, if the fundamentals don’t cause too greater upset, the CAD/JPY could move into another medium-term decline.