CAD/JPY has rallied over the past few days as risk sentiment has been supported. Increased risk appetite typically benefits the Loonie as it is closely related to stock markets as well as oil prices. On the other hand, the Japanese yen which tends to act as a safe haven is often sold in favor of risky assets when sentiment improves. As seen in the daily and hourly charts below, the rally in CAD/JPY has approached a pivotal level. On the daily chart, we can see that the pair is currently testing in the area of the 21 and 55-day simple moving averages. Additionally, the 50% Fibonacci retracement of the rally from October lows to October highs comes in around 75.90 and the 38.2% Fib retracement of the decline from the Oct. highs to recent lows is around the 75.85 area to provided added resistance.
A daily close below the highs of the session would result in an apparent tweezer top which on the 60 minute candlestick charts can be seen as a short term double top. The hourly RSI indicator is currently in a short-term downwards trend and a break below the 50 level would suggest further downside potential. The key support area is around 74.35/45 where the 61.8% Fib retracement (of the advance from Thursday’s lows to yesterday’s highs) converge with the 100 and 200-hour SMA’s. If risk aversion returns, safe havens (i.e. JPY) are likely to firm and high beta currencies (i.e. CAD) are likely to decline. In our view, we prefer a bearish bias while the daily resistance levels hold and a sustained break above the 76.00 figure would negate this bias. To the downside we would for a target ahead of the short-term support level around the 74.50 area.
A daily close below the highs of the session would result in an apparent tweezer top which on the 60 minute candlestick charts can be seen as a short term double top. The hourly RSI indicator is currently in a short-term downwards trend and a break below the 50 level would suggest further downside potential. The key support area is around 74.35/45 where the 61.8% Fib retracement (of the advance from Thursday’s lows to yesterday’s highs) converge with the 100 and 200-hour SMA’s. If risk aversion returns, safe havens (i.e. JPY) are likely to firm and high beta currencies (i.e. CAD) are likely to decline. In our view, we prefer a bearish bias while the daily resistance levels hold and a sustained break above the 76.00 figure would negate this bias. To the downside we would for a target ahead of the short-term support level around the 74.50 area.