The weakness seen in the price of crude oil pushed the Canadian dollar lower against the Greenback and other major currencies. On the other hand, the Greenback continued to lose ground against the Japanese Yen following a two-month rally that began in October. The lack of liquidity during the holiday season paved way for the correction in the Greenback. The Yen also got a boost when Trump voiced his concern over the strength of the Greenback. Ultimately, the CADJPY cross fell to a low of 85.65, from a high of 88.65 recorded on January 6th. We believe that there would be no respite for the CADJPY pair and the decline would continue in the short-term due to the reasons provided underneath.
Statistics Canada reported a 0.2% m-o-m decline in consumer prices in December. Analysts were expecting no change in consumer prices. In November, the consumer prices fell 0.4% on a m-o-m basis. The core retail sales increased marginally by 0.1% m-o-m and in line with analysts’ estimates.
Statistics Canada also announced that the retail sales volume increased by 0.2% in November. However, the reported increase in retail sales was lower than analysts’ anticipation of a 0.5% increase and a 1.2% increase recorded in October.
During the monetary policy meeting held last week, the Bank of Canada (BOC) left the benchmark interest rate unchanged at 0.5%. However, the BOC cautioned that it is willing to lower rates, considering the poor shape of the economy. Commenting on the announcement, economist Paul-André Pinsonnault at National Bank of Canada stated that the Bank of Canada is not comfortable with the strengthening of the Canadian dollar, as it would further increase ongoing challenges faced by exporters. Thus, to keep the Canadian dollar weak, if necessary, the BOC would go ahead and slash interest rates.
So far, US President Donald Trump has not divulged details about infrastructure spending, tax reforms, and deregulation. Such a scenario would continue to strengthen the Yen in the short-term. So, fundamentally, we can anticipate the CADJPY pair to remain in a downtrend.
The price chart clearly shows a double top pattern formation. The RSI indicator has broken below the reading of 50. This indicates the possibility of a further downtrend in the CADJPY pair. The next major support for the currency pair exists at 84.30. So, based on the bearish scenario, we anticipate the cross to come down and test the support level.
A Forex trader can benefit from the short-term weakness by initiating a short position in the CADJPY pair. The short position can be opened near 86. As a responsible trader, a stop-loss order should be placed above 86.60. It is needless to say that profit booking should be done near 84.30.
Purchasing a low or below contract would give a chance to gain from the probable downtrend of the CADJPY pair. The contract should be picked for investment when the pair trades at about 86. A day around February 2nd should be selected as the expiry date for the contract.
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.
