CAD/JPY appears weak ahead of OPEC meeting

The CAD/JPY pair currently trades at 99.21, slightly lower from the latest cyclical high of 100.06 reached on May 13th. The pair has been able to hold above 99.00 levels, mainly on account of the sharp rally in the USD/JPY pair to 124.00 levels. The sharp fall in the Yen negated the similar fall in the Canadian dollar against the USD. Consequently, the CAD/JPY pair remained above 99.00 levels. 

However, the question now is whether the CAD/JPY cross would re-test 100.06 and extend gains further or it will fall to its 200-DMA at 98.31. 

At the current juncture, odds are in favor of the CAD/JPY cross falling to 98.31 levels as– 

1. WTI Crude could drop to USD 54.70/barrel ahead of OPEC meet in June – The OPEC group is widely expected to keep production levels unchanged at its semi-annual meeting at its June 5. Saudi Arabia, the strongest nation in OPEC, feels the strategy of maintaining high production in order to capture market share is working fine. Consequently, there is little reason for the group to cut down its production from the current level of 30 million barrels per day. 

It is worth nothing that Crude plunged for eight of nine weeks prior to the group’s last meeting on Nov. 27th. Given the Saudi faces little resistance from other members of the group, it is safe to assume that Crude could take a hit as we move closer to the June 5 meeting. Weakness in Crude could weigh over the Canadian dollar. 

2. JPY could witness a correction – The USD/JPY pair has rallied more than 400-pips (119.33-124.05) in just a week’s time. The markets have aggressively bought the USD on an increased possibility of an interest rate hike in the US this year. However, the Yen could make a minor comeback, especially if the US first quarter GDP is revised much lower into the negative territory than the expected -0.9%. A negative surprise may also come from a slower rise in the personal consumption. In such a case the Japanese Yen could recover against the USD. On the other hand, the CAD may underperform on account of the weakness in Crude prices. On similar lines, even if the US data provides a positive surprise, the relative fall in the CAD is likely to be higher than the drop in the Japanese Yen. 

CAD/JPY Technical Chart

The pair currently trades just above the 50% Fib retracement of 106.48-91.72 located at 99.10 levels. CAD/JPY has failed around 100.00 levels twice since the beginning of the current month. Hence fresh offers are likely to be seen closer to 100.00 levels. It also means hefty stops could be triggered in case the pair takes out the offers at 100.00. Such a move could lead to a sharp rise to 100.84 (61.8% Fib R of 106.48-91.72). 

However, a break below 99.10 could trigger fresh selling pressure, which could push the pair down to its 200-DMA located at 98.32. A break below 98.32 shifts risks in favor of a further decline to 97.36 (38.2% Fib R of 106.48-91.72). 

Again, traders are advised to remain cautious about a break above 100.00, which would trigger stops and lead to sharp rise to 100.84 levels.