CAD/JPY Forecast: could test 99.70 today

CAD/JPY prolongs its winning streak during the European session, reversing a brief dip seen on Thursday, largely on the back of broad yen weakness after the latest downbeat Japanese CPI data. While, the CAD kept mild losses versus the US dollar, albeit supported by upbeat Canadian GDP numbers released yesterday. The US dollar index, which measures the relative performance of the greenback against six major currencies, was trading subdued at 94.77, recording a -0.11% loss on the day. Meanwhile, CAD/JPY trades 0.20% higher at 99.04 levels, wavering above 99 handle since last few hours.

Later, we have a busy North American session, with markets eyeing major economic data releases from the US viz. manufacturing PMIs – Final and ISM, and revised consumer sentiment which may provide fresh take on USD moves, thereby having major impact on the CAD/JPY cross.

Technically, on daily chart, the CAD/JPY pair is seen trading higher, well supported above 5-DMA located at 98.84 levels. The pair seems to face stiff resistance around 99.20-99.25, having failed several attempts to surpass that band. The daily RSI at 68.74, inching near overbought territory, aims higher indicating further case for upside. With most technical indicators and moving averages as well reflecting a strong buying opportunity, we anticipate that the CAD/JPY cross could rise to 99.70 levels in the session ahead.

Fundamentally, On the CAD-side of the story, the Canadian dollar remains supported after Thursday’s GDP figures surprised on the upside in February. Canada's GDP was flat in February, following the 0.2% decline in January, beating estimates of a 0.1% decline. Measured year-on-year, GDP slowed down to 2.1% in February, from 2.4% in Jan, while it was expected to tick down to 1.9%.

More so, Bank of Canada (BOC) Governor Stephen Poloz told the Standing Committee on Finance that the oil shock is happening faster, but is not larger than anticipated, earlier this week, which also boosted the CAD bulls, with USD/CAD reaching fresh three month lows of 1.1942.

Furthermore, US oil prices also extends its recent bullish momentum and head for 7th weekly gains, wavering around USD 60/barrel mark – 2015 YTD highs. Crude oil prices regained strength this week backed by the recent softness in the greenback and the latest bullish EIA crude stock piles report. US crude oil output rose a meagre 7,000 barrels to 9.37 barrels per day in the week through April 24, but remained roughly 49,000 barrels lower than the peak of 9.42 million barrels seen in the week of March 20. The upsurge in oil prices continues to lift the resource-linked loonie. Oil is Canada’s top export.

On the JPY-side of the equation, Bank of Japan’s (BOJ) monetary policy statement released on Thursday followed by the press conference turn out be non-event for the markets with no new surprises. Hence, the yen did strengthen initially versus the greenback. However, the USD bulls jumped back into the bids later in the US session yesterday boosted by impressive US jobless claims, Core OCE inflation data and Chicago PMI reading, which sent the yen tumbling against the USD to 119.92 levels.

Even in today trading so far, the yen remains weak across the board, hurt by softer Japan inflation figures which showed a showed sharp deceleration of the consumer price index in the Tokyo area from 2.2% y/y rise to a mere 0.4% in April. Moreover, higher treasury yields on both the longer duration and shorter duration notes. 10-yr treasury yields and the 2-yr one stands at 2.069% and 0.587% respectively, both gaining nearly 1% continues to underpin USD/JPY, thereby weighing on the Japanese currency.

Hence the resulting yen weakness is expected to support most yen cross including CAD/JPY in the NA trading. The weakness in the Japanese currency may overshadow any gains witnessed in USD/CAD on the upcoming US data releases.

To conclude:

We expect CAD/JPY to break above the 99.20-99.25 resistance zone and extend gains to reach 99.70 levels. On the contrary, if the cross fails to hold above 10-DMA support located at 98.35 levels, a fresh sell-off may trigger dragging CAD/JPY lower to next support at 97.50 levels.