Technical Sentiment: Bullish

Key Takeaways

• CAD sentiment remains positive as inflation finally coincides with BoC’s target;
• CAD/JPY flirts with the resistance of the Triangle Formation;
• A rally above 94.29 (200-Day Moving Average) changes the daily trend to bullish.

The Canadian Dollar ended last week on a positive note against its Yen counterpart after investors shrugged off negative retail sales and focused solely on the CPI release. CAD/JPY might officially break above the two month old triangle formation, yet no major moves are expected until later this week.

Technical Analysis

At the moment CAD/JPY is trading between 93.71 and 93.89, a very tight range due to the bank holiday in U.S. and U.K..

The pair has been trading inside a 2-month Triangle Formation since the bearish rejection off the 200-Day Moving Average on April 4^th 2014. With Friday’s 93.85 Daily close above the resistance trendline, just below 38.2% Fibonacci Retracement level from 99.14 down to 90.58, it’s fair to assume the market is attempting to expand the trading ranges.

On a bullish break above 94.00/05, above the triangle resistance and May’s Highs, CAD/JPY will immediately run into the 200-Day Simple Moving Average at 94.29. This line depicts the true separation between bearish and bullish territory on the Daily time frame, hence a close above it will signal more gains are in store for the pair. The next resistance hurdle lies at 94.86/95.15, marked by April’s High and 50% Fibonacci Retracement; followed by 95.87, Fibonacci confluence and price pivot zone from 2013.

Failure to continue above 94.00 will suggest indecision is going to linger for a few more days. This will lead CAD/JPY to drop back within the range, toward 93.00 (50 and 100-Day Moving Average confluence) and possibly as low as 92.60, in order to re-test the support trendline.

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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets