CADJPY: Can BoC Boost Maintain?

There were a lot of interesting moments occurring in global markets during the North American morning trading session that has created a bit of a hodgepodge of market moves. First of all, the Chinese GDP figure released last night of merely 7.0% growth over the last year was disheartening as it is the lowest level seen since 2009, but it did meet expectations; however, other Chinese data releases didn’t reach consensus and was a general drag on the commodity currencies as a result. The European Central Bank and President Mario Draghi didn’t release any fireworks in their decision this morning, but they did elicit a confetti drop. Meanwhile, US data did the USD no favors as Capacity Utilization, Industrial Production, and the Empire State Manufacturing Index all missed expectations by wide margins. Amongst all this activity, US equities are surging higher with both Dow Jones and S&P 500 up around 0.5% as we head in to the lunch hour.

Perhaps one of the biggest drivers of price action this morning though has to be the Bank of Canada who appears to be more optimistic than many anticipated heading in to today. The decision by the BoC to leave interest rates at 0.75% was widely expected, but it was the statement that got most of the attention. Within the statement they insinuated that they expect the Canadian economy to recover more quickly than they anticipated merely a couple months ago when they unexpectedly cut interest rates. For instance, “the oil price shock on growth will be more front-loaded than predicted in January, but not larger”, and “risks to the outlook for inflation are now roughly balanced” were statements that were deemed much more positive than in the recent past.

Due to the BoC’s sunny disposition, the CAD has been the star of the show against virtually every other currency, and threatens to break out of the month’s long sideways channel in which it has been trapped in the USD/CAD. Since the USD has been experiencing a bit of a comeuppance against many currencies this morning, that channel break may not be that surprising. It is the CAD/JPY which could offer a more intriguing setup as the CAD is the only currency gaining substantially against the JPY. Remarks from Japanese Prime Minister Shinzo Abe’s economic advisor Koichi Hamada a couple of days ago that the USD/JPY would be priced appropriately at 105 haven’t been retracted, nor have they been denounced by Japanese authorities. Since that statement has been allowed to marinate, the thought is that the JPY may start to get back some mojo here moving forward.

On the technical front, there is a 78.6% Fibonacci retracement near 96.25 that could create some resistance on the CAD/JPY if JPY strength were to take hold. In addition, if it were to decline all the way down to 94.40/50 thereafter, it would complete a visually satisfying Bullish Gartley pattern, where potential support could come in to play. Before we can start talking about bullish patterns though, the resistance near current levels needs to hold, but a break above A near 96.60 could deem this pattern null and void.