CADJPY takes a hit as BoC drops their hawkish stance

Earlier today the Bank of Canada announced their interest rate decision and released their monetary policy report. Interesting, we saw the BoC alter their somewhat more hawkish stance to that of a more neutral tone and as a result the Canadian dollar has come under significant pressure.     

Key Bank of Canada Bullets:

•  BoC maintained their target for the overnight rate at 1%
•  Dropped language on the need for future rate hikes
•  Cut Canada’s 2013 GDP forecast to 1.6% from 1.8% & 2014 to 2.3% from 2.7%
•  Inflation has remained low over past few months, reflects significant slack in Canada’s economy
•  Inflation persistently below target means downside risks assume increasing importance
•  CPI expected to return more gradually to 2% near end of 2015

CADJPY has been consolidating over the past few sessions, however earlier today it broke below the key 94.75/95 zone – Convergence of 55, 100, 200-day sma’s, 13 & 21-week sma’s and the daily Ichimoku Cloud bottom, and as a result this pair has moved decidedly lower. More importantly CADJPY is rapidly approaching 93.50, which sees the neckline of a Head & Shoulders pattern, and should this give way we may continue to see it decline over the ensuing days/weeks. Interestingly, daily RSI also sees a similar Head & Shoulder pattern, accordingly we will be carefully monitoring this indicator as it could potentially confirm a CADJPY break to the downside.

Should CADJPY close below 93.50, next levels to watch:

• 91.80 – June 2013 Low
• 90.90 – 38.2% retracement of 2012-13 rally
• 90.00 – Psychological & barrier/option related
• 89.00 – Head & Shoulder measured move projection
• 88.40/60 – Prior 2013 Jan/Feb. lows

Chart Source: Forex Charts by eSignal