Record exports and narrowed trade deficits turned the Canadian dollar stronger against the yen last week. Expectations of a rate hike by the Bank of Canada also strengthened the Canadian dollar. The yen turned weak on rising outflows as investors started looking for opportunities outside the country due to the scarcity of bonds in the country. The Bank of Japan continues to corner most of the bonds issued by the government. This has led to the scarcity. However, a bearish trend reversal is expected in the CADJPY pair, which is trading at 85.0, due to the reasons given below.
According to Statistics Canada, the economy lost 7,500 jobs in May, while analysts anticipated a gain of 19,100 jobs. In the previous month, the economy lost 1,100 jobs. However, the unemployment rate stood unchanged from the previous month at 5.8%.
The statistical organization also reported a capacity utilization rate of 86.1%, a little lower than economists’ expectation of 86.3%, but greater than the previous month’s utilization rate of 85.6%. In addition to the economic data, political developments also do not favor the Canadian dollar.
On Saturday, while leaving the G7 summit, President Trump demanded members who participated in the summit to reduce trade barriers. He warned that the US would end all trade ties with allies if there is no concrete action in this regard. For cordial trade relations, Trump believes that there should not be any tariffs between the US and its allies (Britain, Germany, France, Canada, Japan, and Italy)
Furthermore, Trump also made a personal attack on the Canadian Prime Minister saying “PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings”. The personal attack has increased the economic risk for Canada. Regarding NAFTA trade negotiation, Trump stated that the US would be better off without any sort of agreement with Canada and Mexico.
The decrease in risk appetite caused due to Trump’s comments has increased the demand for the yen, a safe-haven currency. Furthermore, concerns over uncertainty in Italy and emerging market risks are also forcing investors to look for safe-haven assets. All these factors favor the CADJPY pair’s decline in the short-term.
The historical price chart indicates that the CADJPY pair is facing resistance at 85.40. The MACD indicator has crossed below the zero reading. Therefore, a bearish reversal can be expected in the CADJPY pair.
We are planning to open two trades, one each in the Forex and binary market, using the analysis. In the Forex market, we are considering opening a short position at or near 85.10. To avoid large losses, a stop-loss order would be placed definitely above 85.90. The position will be winded when the currency cross declines to 82.60.
Simultaneously, we will look for a put option contract with an expiry period falling between June 20th and June 22nd. Additionally, we would enter only if the currency pair trades near 85.10 in the Forex market.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
