Canadian Dollar Continues to Consolidate Against Japanese Yen

Anthony Gallagher Anthony Gallagher

18 July 2019

The Canadian dollar has been going back and forth against the Japanese yen for some time, as the last week or so has been very difficult to deal with, unless you are a short-term range-bound trader. Speaking of which, if you have that type of trading system, then this has been an excellent marketplace for that. That being the case, I suspect that we are winding up for a larger move coming soon though.

Convergence of Influence

There is a certain amount of noise in this general vicinity, mainly because there are a couple of levels that are attracted a lot of attention. The 200 day EMA is just above the ¥83 level, and of course, we have the ¥82.50 level underneath, a “midcentury mark.” Underneath there, we also have the 20 day EMA approaching the consolidation area that I have marked on the chart. In other words, this is a bit of a mess and that may explain why we have several hammers and shooting stars within the same 50 pips.

Crude oil and its Influence

Crude oil course has its influence on the Canadian dollar, but it has even more in this particular pair, mainly because the Japanese import 100% of their oil. If you think about it, it makes quite a bit of sense. If the man for crude oil rallies, then that should help the Canadian dollar. If the Japanese economy is doing fairly well, and by extension the global economy, this means that Japan will be sending money to Canada, and other oil-producing countries, in order to procure that commodity. That drives up the value of this pair quite naturally. Obviously, crude oil falling can have the exact opposite effect, because if crude oil is falling quite often it means that we are worried about global growth, so therefore money flows into a safety currency such as the Japanese yen.

The Trade

There is a multitude of scenarios that we could be looking at currently. The ¥82.50 level, of course, is an area that should be supportive. However, you cannot ignore the 200 day EMA, as it is something that a lot of longer-term traders will pay quite a bit of attention to. In fact, most people will look at it as the determination of the longer-term trend. With that being the case, if we can break above the ¥83.25 level, then this market should continue to go much higher, perhaps reaching towards the ¥85 level. On the other hand, if we get a daily close below the ¥82.50 level, then we should have the market go down to the ¥81.50 level, possibly even the 81 young levels.

I will be waiting for a daily close outside of this range though, because as you can see it has been rather choppy. There are a lot of questions when it comes to the market, as global cooling of the economy and of course trade wars will have a massive influence. Ultimately, being patient is probably the best way to play this market, and then react once the market makes up its mind.


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