CAD/JPY: Technical outlook and perspective of carry trade
|The CADJPY currency pair, which expresses the value of the Canadian Dollar against the Japanese Yen, is one of the most classic risk-related pairs.
JPY is considered a safe haven because of Japan’s relative political stability, the country’s current account surplus and the active domestic investment community in Japan. Canada, at least historically maintained a wide interest rate differential from Japan, made CAD attractive from a carry-trade perspective.
The oil and gas industry is very important for the Canadian economy as an important export energy commodity for the country. Therefore, CAD tends to push higher on the back of oil prices which usually rise when increasing global risk sentiment and growth expectations. CADJPY is very sensitive to risk sentiment. The chart below shows the pair’s decline this year.
When global risk sentiment and growth expectations worsen, oil prices tend to fall, and CAD will be dragged down. Meanwhile, JPY tends to strengthen simultaneously as risk capital outflows from Japan are repatriated and investors seek security in safe-haven FX, including JPY, USD and CHF.
The intraday chart reveals a ranging market the last 4 weeks while today enters the 5th week. Ranging between a low of 78.00–79.68, the price has formed 3 times the same high price and 2 times the low price, so it can be concluded that the starting / sideway has formed a rectangle pattern. Nearest Resistance is at 79.00 and 79.68 next. A breakout of 79.68 could retest the 80.55 and 81.93. Nearest Support can be seen at 78.38 and 78.00, while breakout level at 78.00 will validate the decline to 76.50 and 73.80.
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