CADJPY Blasts Out of the Atmosphere, Canadian CPI on Tap

One theme we’ve been consistently highlighting over the last few weeks is policymakers’ (and thus traders’) increasing focus on inflation reports. With price pressures in many developed markets rapidly falling toward outright deflation, many central banks are pondering additional monetary stimulus to help support their moribund economies.

Tomorrow, Statistics Canada will release its measure of CPI inflation (Oct), with traders and economists expecting a -0.3% m/m contraction on the headline figure, but a 0.2% m/m rise in the Core reading (2.0% and 2.1% y/y, respectively). Following in the wake of today’s decent US CPI report, there is a chance core inflation could come in hotter than expected in Great White North, though the persistent fall in oil prices will keep a lid on headline inflation.

Technical View: CADJPY

It will hardly come as a surprise to any readers that CADJPY has been surging of late, primarily on the back of continued easing and poor economic data out of Japan. The 4hr chart (below) shows that rates have been consistently following a bullish channel higher since the start of November, though a near-term pullback is possible after rates hit the top of the channel earlier today. More importantly, the pair just broke above a key area of converging previous / Fibonacci extension resistance in the 103.65-104.00 zone; now that this resistance zone has been broken, it should provide support on any near-term dips moving forward.

Turning our attention to the secondary indicators, the uptrend remains healthy. The MACD has been moving sideways above the zero level for the last three weeks, while the RSI has also been rangebound in a bullish range (55-75) since the beginning of the month. As long as these indicators maintain their consistently bullish positions, the path of least resistance for CADJPY will remain to the topside. Only a move back below key previous-resistance-turned-support in the 113.65-114.00 area would leave the pair vulnerable to a deeper pullback.

Source: FOREX.com