CAD/JPY traded higher yesterday, after it hit support at 84.90. Nonetheless, the recovery was stopped slightly below the 85.35 barrier and then, the rate retreated somewhat. The pair continues to trade above the prior medium-term downside line taken from the peak of the 5th of January, and also above the short-term upside support line drawn from the low of the 19th of March. What’s more, it is trading above all three of our moving averages, which point north. Thus, we keep the view that the short-term outlook remains positive.
If the bulls manage to take charge from current levels and drive the battle above the 85.35 line, then we may see them targeting once again the 85.70 hurdle. Another break above that barrier could pave the way for the 86.00 territory, defined by the inside swing low of the 12th of February. The catalyst for a strong leg up could be a hawkish BoC tomorrow, something that may strengthen the case for an interest rate increase at one of its upcoming gatherings.
At their latest meeting, policymakers decided to keep policy unchanged and appeared more concerned over trade than they were in January. However, bearing in mind that fears over the prospect of a global trade war have eased recently, and headlines suggest that there has been a significant progress in NAFTA talks, we see the case for the Bank to sound more optimistic this time around.
Turning our attention to the short-term momentum studies, we see that the RSI rebounded from near its 50 level and its respective upside support line, while the MACD, already positive, shows signs of bottoming as well. It could cross back above its trigger line soon.
On the downside, a dip back below 84.90 could initially aim for our next support of 84.55, the break of which could see scope for more downside extensions, perhaps towards the 84.15 territory. This could be the case if the BoC disappoints CAD-bulls by sounding less upbeat than anticipated.
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Article written by Charalambos Pissouros, Senior Market Analyst at JFD Brokers
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