Technical Sentiment: Bearish
Key Takeaways
- Canada Employment Changed surprised everyone with weaker than expected numbers: -11.0K;
- Ivey PMI at 50.9 vs. economists consensus 55.7;
- Price action indicates a bearish reversal is in play early next week.
Canadian Dollar bulls were stopped dead in their tracks on Friday, with disappointing reports from both Employment Numbers and Ivey PMI. Next week will begin with selling pressure as the pair faces several support levels.
Technical Analysis
Discouraging data marked the end of a month long rally in CAD/JPY. On Thursday price action appeared ready to head for a resistance line at 97.50, only to fall short around the 97 handle. Due to lack of any consistent retracements throughout this 430pip rally, overbought conditions are exacerbating the selling pressure.
On the Daily time frame, CAD/JPY is forming a large Bearish Engulfing Bar pattern, erasing all gains from Thursday. We expect to see a continuation lower starting Monday, 8th September. Sellers will encounter multiple support levels, all close to each other, and the size of the retracement will depend on how price reacts to them.
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A daily close below 96.22, July’s top, will force buyers to unwind their positions faster come Monday. Immediately below this level we can spot 95.89, an old pivot which could slow down the sell-off. A break through this level will pave the way towards 94.87 / 94.20, where buyers are expected to return in order to preserve the main uptrend.
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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets
