Canadian Dollar Finding Support Against Japanese Yen

Alan Penny

10 October 2019

3 min read

  • CAD/JPY continues to find interest at ¥80
  • Crude oil markets finding support
  • Risk attitude of overall market will be crucial

The Canadian dollar initially fell during the early hours of Thursday, but then turned around to rally towards the 20- and 50-day EMA indicators at roughly ¥81. The ¥80 level underneath will continue to be attractive for traders, as we have seen both resistance and support at this level, and “market memory” should come into play.

A potentially significant milestone

Keep in mind that the ¥80 level is a “large, round number”. That attracts a lot of the larger flow in the marketplace, as large funds simply cannot jump in anywhere. What they will do typically is add or subtract from a position every time it gets close to one of these large figures.

This is because so many others do that it adds enough liquidity that allows them to get in and out of the market without moving it too drastically. This is especially true with some of the cross pairs, such as CAD/JPY. This pair isn’t quite possible to jump into with both feet, as the liquidity isn’t as high as it is in some other currency pairs, such as EUR/USD.

Crude oil influence

Whenever trading the Canadian dollar, the influence of crude oil should be taken into account. This is especially true for the CAD/JPY pair as Canada is an exporter of crude oil, while Japan is dependent on foreign imports for 100% of its crude oil. In a sense, this pair is probably the most sensitive market in the foreign exchange to crude oil because of this dynamic. It is not the only one, but it is probably one of the largest.

Whenever trading the Canadian dollar, the influence of crude oil should be taken into account.

With that in mind, one should pay attention to the fact that both the WTI and Brent markets have found significant support just below current pricing and have started to bounce slightly. This can be extrapolated to this chart, where we see this slight bounce from the ¥80 level.

CADJPY Technical Analysis

CAD/JPY chart

The trade going forward

The trade going forward in this pair is to simply buy short-term pullbacks until the ¥80 level gets broken. This doesn’t mean we are going to explode to the upside, but it clearly offers a “floor in the market” that we can trade from. With that, short-term trading will continue to be desirable.

Keep in mind that if the 200-day EMA, which is currently at ¥82, were to be broken, it would be a very bullish sign longer-term and could send this market much higher. We would almost have to see the crude oil market break above resistance, so as a proxy you could use the WTI contract and the $55 resistance barrier to mark that move. If that happens, then this pair should continue to go much higher. The most likely scenario is a simple building of a range between ¥80 on the bottom and ¥82 on the top.

Written By
Alan Penny

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