Canadian dollar against Japanese yen perfect microcosm of markets
The Canadian dollar had a bully session during the trading day on Friday, as we got employment figures out of Canada. Ironically, the jobs number wasn’t that good, so at this point one would have to think that the Japanese yen is a major driver of this market.
As you can see, there is a confluence of technical indicators
As you can see on this chart, I have several moving averages and horizontal lines plotted out. The ¥82.50 level is an area that features a gap that we have just filled, so that of course is a bullish sign. Beyond that, we pulled back to fill a gap underneath, and then bounced again to go to the top of the gap. It shows mass confusion and that of course is a microcosm of everything that we are seeing in the markets.
Just above, we have the 200 day EMA which should be resistive, as it is a longer-term trend indicator. Just below, the 20 day EMA is trying to cross above the 50 day EMA which of course is bullish. In other words, there are pressures in both directions showing this market building a pressure, perhaps trying to make a move but at this point it could work either way.
At this point, most traders around the world are a bit confused as central banks have to do everything they can to keep markets afloat. If you pay attention to all of the central bankers, it is interesting how they have to jump in and say the market every time there is the slightest hint of trouble. This suggests that soon there will be some type of major unwinding of risk appetite, but in the short term it looks as if the markets continue to try to show “risk on”, which of course is bullish. That being said, it’s going to be a difficult fight ahead of us.
The trade going forward
The trade going forward in the CAD/JPY pair is waiting for a daily close above the 200 day EMA. At that point, it’s very likely that we will have more money flow into this market. Beyond that, I would also take a look at the USD/JPY pair and see if we can break out to the upside. If we can, then that shows that the Japanese yen is weakening, which is exactly what you need to happen in this situation. I don’t think the Canadian dollar is going to be strong enough on its own to lift this pair, and quite frankly oil markets are much help either.
Ultimately, this comes down to risk appetite more than anything else, and that is shown against the Japanese yen in a variety of currencies, not just the Canadian dollar. In other words, this market should move right along with the other JPY denominated currency pairs, so keep an eye on several of them to get a feed as to which direction this pair will go on the longer-term. That being said, if we were to break down there is massive support near the ¥81.50 handle.