Start the week of August 15, 2022 with our Forex forecast focusing on major currency pairs here. 

CAD/JPY

The Canadian dollar has stabilized against the Japanese yen over the last couple of weeks, essentially going nowhere. If the CAD/JPY currency pair can break above the highs of the last week, it’s very likely that the Canadian dollar will drive toward the ¥108 level. On the other hand, if we do pull back from here, I suspect that there is going to be a significant amount of support near the ¥102 level.

The Bank of Japan continues to buy “unlimited bonds”, which is the same thing as printing currency. If crude oil starts to recover again, this could be one of the best FX-related plays out there.

USD/JPY

The US dollar fell a bit against the Japanese yen during trading last week, showing signs of negativity. However, there is also a significant amount of support near the ¥132.50 level, and we have recovered from there. It’s very likely that the USD/JPY currency pair will continue to see this market go higher over the longer term, but we may have a bit of sideways action to deal with between now and then. After all, we need to understand that the market has been a bit overdone for a while, so I think we are simply working off the froth right now.

AUD/USD

The AUD/USD currency pair shot higher last week, showing signs of life again. However, this is the one standout against the US dollar that I see right now, so I don’t necessarily trust this rally. The 0.7 to a level above should offer a bit of resistance, so I would be cautious about going long of the Australian dollar here. It’s probably more likely than not going to see some negativity, maybe later in the week.

EUR/USD

The EUR/USD currency pair tried to rally significantly but found the 1.04 level a bit too much to get beyond. Because of this, it looks like we will continue to see a “fade the rally” type of market in the euro which is not a huge surprise considering all of the economic danger that the EU currently faces. The US dollar is by far the strongest currency over the longer term, and I think the euro is going to remain a punching bag. If we see any signs of strength this coming week, I will be looking for the first signs of exhaustion to start shorting.

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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.