If we break down below the ¥101 level, that could be a major turnaround just waiting to happen.

The Canadian dollar has rallied a bit during the trading session on Wednesday to show signs of life again, as we are now threatening the ¥105 level. Furthermore, the 50-Day EMA is sitting right around the same level as well, so I think it’s probably only a matter of time before we see a bit of a fight on our hands.

Factors to Keep in Mind

• The oil markets because we do see some type of recovery in the oil markets, which obviously helps the Canadian dollar.
• Most of the effort in this market will probably come from the Japanese side of the equation.
• The Bank of Japan continues to fight to keep the 10-year yield in that country down to 0.25%, which is a Herculean effort, to say the least as interest rates around the world have been rising.

In fact, Japan has seen inflation for most of this year, which is the first time in years. Because of this, the Bank of Japan has to step in and continue to buy “unlimited bonds” in order to keep the bench right where it wanted. That’s tantamount to printing “unlimited yen”, which obviously increases the supply of that currency in the markets. If the interest rates around the world continue to rise, the Japanese yen will continue to take it on the chain, which is what we have seen everywhere, not just against the Canadian dollar.

Ultimately, we are in an uptrend, and now the question is whether or not we can break significantly above the ¥105 level. If we cannot, it’s more likely than not that we are going to see a sideways type of market, with the ¥102 level underneath offering support, as we banged around and tried to work off some of the froth. If we break down below the ¥101 level, that could be a major turnaround just waiting to happen. A lot of this is going to come down to the overall yields in bonds, not just these 2 countries. Because of that, you need to keep a broad-based perspective on yields.

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Keep in mind that the crude oil markets have a major influence on this currency pair as the Canadian dollar is a proxy for that market for currency traders. 

• The Canadian dollar initially fell quite drastically against the Japanese yen as former Japanese Prime Minister Shinzo Abe was assassinated.
• While a tragedy, the reality is that it has absolutely nothing to do with the present situation in the Japanese economy.
• The market ended up rallying quite stringently, as the Japanese yen was sold off against almost everything. 

Impact of BoJ and Crude Oil

The Bank of Japan continues to buy unlimited bonds, and that has a negative effect on the currency as it is essentially the same thing as quantitative easing, or “printing yen.” Because of this, it makes quite a bit of sense that we would see this market continue to be more or less a “buy on the dips” type of situation, as we continue to try to find value. The ¥106 level is an area that was resistant previously, but it looks like we are becoming more and more aggressive on the breakout possibilities.

If we do break above the ¥106 level, then I think we have much further to go. Keep in mind that this is a strong uptrend and has been for a while. In fact, you can make an argument that this pair is quite a bit more sustainable than many of the other yen-related pairs, as it has not been quite as parabolic. On the other side of the equation, you have to keep in mind that the crude oil markets have a major influence on this currency pair as the Canadian dollar is a proxy for that market for currency traders. If crude oil rises, just as it did during the day, as a general rule this pair will rise right along with it as Japan imports 100% of its petroleum from foreign sources.

If we were to turn on a breakdown below the ¥102 level, that might cause a bit of a reset in this pair, perhaps even driving the CAD/JPY pair down to the ¥98 level, where would meet up with the 200-day EMA. The market breaking down below that indicator would be very negative, and would signify a trend change. However, it looks very unlikely at the moment.

Unless the Bank of Japan changes its overall attitude, it’s difficult to imagine that this market will break down with any real significance.

The Canadian dollar rose again on Tuesday as the Japanese yen is simply floundering around the currency markets. With the Bank of Japan doing everything it can to fight interest rates rising, they are essentially buying every bond that they can get their hands on. In fact, the BOJ owns over 50% of all Japanese debt, suggesting that the Japanese yen could enter into some type of negative feedback loop.

The size of the candlestick is reasonably strong, as we have broken above the ¥106 level, and it now looks as if we could go looking to reach the ¥107 level. At this point, a short-term pullback should continue to offer attractive opportunities for those looking to get involved to the upside, so I think at this point, the ¥104 level is your short-term support level, followed by the ¥102 level, where the 50-day EMA is currently sitting and rising, plus an area where we had previously seen both support and resistance.

The ¥102 level is an area that will be crucial for the longer-term health of this market, but even if we were to break down below there, it’s likely that the ¥100 level is even more supportive. If we were to break through that area, it’s likely that we will continue to break down quite significantly. Ultimately, this is a market that has more of a “buy on the dip” mentality than anything else, especially if the crude oil market continues to strengthen. However, if crude oil falls, you may see the CAD/JPY pair fall with it, or perhaps underperform. After all, the Bank of Japan aspect cannot be forgotten. In other words, this pair may rise slower than the USD/JPY pair.

More likely than not, we will probably break out and go much higher, clearing the ¥107 level and reaching to the ¥110 level. The ¥110 level has a certain amount of psychology attached to it, due to the fact that it is a round figure. Nonetheless, when you look at the very long-term charge, it’s really a situation where the ¥110 level is simply but a speed bump along the way to much higher pricing. Unless the Bank of Japan changes its overall attitude, it’s difficult to imagine that this market will break down with any real significance.

Ultimately, I think we will break out and I don’t have any real interest in trying to short this pair anytime soon.

The Canadian dollar initially dropped Wednesday but saw a nice recovery late in the day. This lines up quite nicely with the oil markets, as they had initially sold off, but have also recovered quite a bit. Because of this, the market has jumped right back to its old correlation between crude oil and this market, so it does make sense that we would see the shape of the candlestick look the same in both markets.

At this point, there is no reason to think that this market will not continue to go higher, because the Bank of Japan continues to fight interest rates rising in that country, meaning they are essentially “printing Yen” along the way. They are by far the loosest central bank in the world, so the Japanese yen will continue to pay the price. Furthermore, if there is more demand for crude oil out there, that benefits Canada, and it’s also worth noting that Japan imports 100% of its crude oil.

The ¥102 level looks to be supported, especially now that the 50-day EMA is rapidly approaching that level. This is a nice uptrend, and there’s no reason to fight what’s going on here. Waiting for dips that you can pick up a little bit of value in makes the most sense. It is worth noting that the ¥107.15 level has caused a minor resistant barrier, but there’s nothing from a psychological or long-term standpoint that suggests that we cannot break above that level and continue to go higher. In fact, I fully expect that to be the case, especially after the price action during the trading session on Wednesday.

With oil recovering the way it did late in the day, it does make sense that we would see the CAD/JPY pair continue to show signs of life. That being the case, if we can get some type of significant rally in the stock markets, that may help this pair as well. It’s worth noting that it was a strong balance during the day, so everything lined up for a nice recovery after some early selling during the Asian session. Ultimately, I think we will break out and I don’t have any real interest in trying to short this pair anytime soon.

I will probably look at this in a day or two as value, but right now it looks like we still have a little bit of drifting to do.

The Canadian dollar fell a bit against the Japanese yen on Wednesday, as the oil markets have also started to correct a bit. Nonetheless, oil should continue to rise over the longer term, so the normal longer-term correlation should come back into the picture. The market is highly sensitive to crude oil as Canada is a major exporter of crude, while the Japanese economy imports 100% of its fuel.

When I look around the world, it’s obvious that there is a lot of concern when it comes to risk appetite, and one would have to assume that the “risk appetite trade” would be buying this pair. However, the Bank of Japan continues to do everything it can to keep interest rates near the 25 basis points area on the 10-year note, so at this point, the Japanese yen will continue to drop in value against most currencies, but no market goes straight up there forever. In fact, a pullback to the box that I have had on this chart for several days makes sense. That would have the market testing the ¥102 level, an area that had been a previous high.

The 50-day EMA is rising toward that same area as well, so I think it does make quite a bit of sense that it all coincides in the same area and we get an opportunity to see buyers jump in. Ultimately, that’s the trade I am looking for, but we will have to see whether or not we get that opportunity. If we do break down below the 50-day EMA, then the next major support level will be found at the psychologically important ¥100 level. Anything below there then starts to threaten the overall trend itself.

That being said, pay attention to the oil market, pay attention to the bond yield differential between the two economies, and of course the overall risk appetite. As long as that’s going to all point toward Canada, then I think it is likely that we will continue the trend, but the occasional pullback from a parabolic move would be expected, just as it would in any other market. I will probably look at this in a day or two as value, but right now it looks like we still have a little bit of drifting to do.

The US dollar has fallen hard during the trading session on Friday to reach the 1.29 area against the Loonie. The Canadian dollar has a strong correlation to the oil market, which of course was very strong during the session. The question now is whether or not the previous resistance will offer support near the C$1.29 level, or if we continue to fall and breakthrough that area to enter the previous consolidation area? Ultimately, the market should have a little bit of a reaction to that area based on the gap that we have jumped above.

The size of the candlestick is rather bearish, but it is also worth noting that we have seen a lot of support there over the last week, so it will be interesting to see if we can bounce from here. A lot of this will come down to whether or not oil truly takes off, and if the US dollar gets a bit of a pullback in general as it has been extraordinarily strong against multiple currencies, not just the Canadian dollar if the US dollar takes a bit of a breather, that might be reason enough to have this market pullback.

However, if we were to turn around and bounce from here, the market could go looking to take out the C$1.30 level next. If we rally above there, then it is likely that we could go looking to reach the C$1.31 level. A lot of this could be influenced by oil, but it also could be influenced by fear, as the US dollar continues to be the first place people run to when they are concerned. That being said, it is worth noting that this pair does tend to be very choppy as the two economies do so much in the way of cross-border transactions. You can think of this a lot like the EUR/GBP pair, as there is a lot of noise between both of those currencies as well.

If we were to break down below the C$1.29 level, we will more likely than not see a bit of support come into the picture not only at the gap, but also at the 50 Day EMA which is rising at this point and looking to be influential yet again as we have seen it be so many times in the past.

The US dollar has been a bit of a wrecking ball against everything else, so it is difficult to imagine that the Canadian dollar is going to be any different.

The US dollar pulled back a bit on Wednesday to reach down towards the 1.29 level. That is an area that has previously been significant resistance, and now we have pulled back to show signs of market memory. The 1.29 level is an area that has been noisy more than once, and it does suggest that we are more likely than not going to see a little bit of value hunting in the general vicinity.

The US dollar will continue to strengthen over the longer term, as the CPI number suggests that there is a lot of inflation. The one thing that does work for the Canadian dollar is the oil markets, which were very strong during the day. Having said that, the US dollar is by far the strongest major currency out there, so it makes quite a bit of sense that the momentum will continue to push the market to the upside.

If the USD/CAD pair can break above the 1.30 level on a daily close, it is likely that momentum will continue to come into this market and send this pair much higher. We have just broken out of a major consolidation area, and it does suggest that we are more likely than not going to continue to see this market try to go much higher. For what it is worth, the rectangle measures for a 400 PIP move, suggesting that this pair could find an exchange rate of C$1.34 before it is all said and done.

Keep in mind that this pair does tend to be very choppy, and it does have a lot of outside influence due to cross-border transactions, crude oil, and the divergence of central bank policy. With the Federal Reserve looking very likely to have to stay hawkish, that should give a little bit of a boost to the US dollar over the longer term, but at this point we had been just a bit overbought, so it does make sense that we need to pull back to find more momentum. The US dollar has been a bit of a wrecking ball against everything else, so it is difficult to imagine that the Canadian dollar is going to be any different.

The C$1.27 level underneath could be a potential target for the short term.

The US dollar has rallied initially during the trading session on Thursday to reach the 1.29 area. This area was the top of a previous consolidation area that we have been stuck and for a while. Because of this, it is not a huge surprise to see that we pulled back a bit, especially as the Canadian dollar correlates with the crude oil market that is relatively strong. Speaking of crude oil, crude oil had a very good day after initially selling off, showing an almost mirror image to this chart.

At this point, a lot is going to be made about whether or not the US dollar can continue to strengthen. It is overbought in general, and the Canadian dollar does tend to fare relatively well against the greenback unless something is going on in the crude oil market that makes it particularly toxic. The idea that there is still a serious supply issue when it comes to crude oil is certainly something that is going to help the Canadian dollar in general. That being said, I do not necessarily think that we are suddenly going to see Loonie strength, rather we may just see a short-term pullback into the same region that we have been in.

The 50 Day EMA is near the 1.2635 level and is rising. It has just crossed above the 200 Day EMA as well, but I would not pay too much attention to the so-called “golden cross” because the moving averages are relatively flat. The candlestick for the day looks as if it is going to end up forming a shooting star, which gives you yet another reason to think that perhaps the resistance could hold. That being said, if we were to break above the 1.29 level, the market will likely go looking to test the 1.30 level above, an area that also has a certain amount of resistance built into it, not only from a structural standpoint but from a psychological standpoint as well.

As things stand right now, it looks as if we are going to stay within the overall consolidation area, perhaps giving a little bit of a reprieve to the Canadian dollar in the short term. The C$1.27 level underneath could be a potential target for the short term.

Shorting is impossible at this point, but if we do see another breakdown in the yen-related pairs, this might be one worth exploring.

The Canadian dollar bounced on Wednesday at the ¥99 level, an area that should capture a lot of attention because it has historically been very important. Furthermore, we had initially seen a major push lower when we pierced that level for the first time, so now that we have pulled back to retest this area, a bit of buying pressure would make quite a bit of sense.

At this point, it could come down to the oil market perhaps driving the Canadian dollar higher, or it may just simply be all about the Japanese yen. After all, the Bank of Japan continues to do everything it can to drive down yields, and this means that they are essentially “printing yen.” That works against the value of the currency, and this has been reflected in the markets over the last several weeks. That being said, we had gotten overdone, and this massive pullback has made a certain amount of sense. That pullback allows for people to pick up the trade at lower levels, which is certainly something that looks like we are going to do.

Unless the Bank of Japan suddenly changes its attitude, it is difficult to imagine a scenario where we would see the Japanese yen recover for a longer-term move. Even if we break down below the ¥99 level, I see a lot of support all the way down to at least ¥97, so therefore it is probably only a matter of time before the market bounces. The market is obviously in a bullish move and as a result, I have no interest in trying to short this market until we break down below the 50-day EMA at the very least.

If crude oil starts to rally, then that will more likely than not supercharge this pair, because Canada being a major exporter of oil and Japan importing all of its oil sets up almost perfectly. Because of this, this is a market that I will be paying close attention to, as it looks like oil is trying to support itself again. A move to the highs would make sense, which is near the ¥103 level. Shorting is impossible at this point, but if we do see another breakdown in the yen-related pairs, this might be one worth exploring.

I still favor a move to the upside more than anything else and I would look at any pullback as a buying opportunity.

The US dollar gapped higher against the Canadian dollar on Monday as we continue to see a lot of strength in the greenback. As we continue to worry about global growth, it does make a certain amount of sense that money is running to the United States for protection. Furthermore, we also need to keep in the back of our mind that there are concerns about whether or not there is going to be enough growth to suggest that we will have a massive amount of demand for crude oil.

Furthermore, we need to look at the interest rate differential between the United States and Canada, which of course favors the United States. However, recently we have seen some inflationary numbers coming out of Canada, so that will more likely than not keep this market somewhat in check. We look at the longer-term chart, we have been bouncing around a major consolidation area with the 1.29 level above being a major resistance barrier. Underneath, the 1.25 level will be significant support, so it all comes together for a nice 400-point range.

As long as we continue to see so much in the way of noisy behavior, it is difficult to imagine that we are going to get overly bullish on anything that is not the greenback right now because it represents safety. However, if we were to break above the 1.29 level, it could open up the possibility of a bigger move, with an eye on the 1.30 level as a major barrier. If we were to break above there, then it becomes more or less a “buy-and-hold” type of situation. I do not necessarily think that is going to happen easily, but that is something that we need to keep in the back of our minds.

It should be noted that there is a gap underneath, and that quite often will cause a significant amount of support and it is possible that we could continue to see a lot of interest due to that. However, if we were to break down below the 50-day EMA, then the market is likely to go back down to the 1.25 handle. That being said, I still favor a move to the upside more than anything else and I would look at any pullback as a buying opportunity.