Canadian Dollar Targeting 99 – 100 Yen

Technical Sentiment: Bullish

Key Takeaways

• Canadian Manufacturing Sales spiked to 2.5% in July 2014, well above expectations;
• Uptrend continues with a fresh Higher High, accelerating above the channel resistance;
• Japan Trade Balance due Wednesday
• 00 – 100.00 represents a major attraction point for buyers.

Now that price has escaped outside the boundaries of the bullish channel and the previous resistance at 97.50/70, CAD/JPY is free to rally higher in the coming days.

Technical Analysis

Although just one week ago CAD/JPY appeared to be topping after a fast spike up to 97.70, followed by a limited descend back within its channel boundaries; buying began gaining momentum on Tuesday as Canadian Manufacturing Sales rose above expectations and BOC Gov Poloz insisted on BoC’s need for a floating Loonie. Having a weak Yen across the board doesn’t really help correction scenarios at this point, which grants CAD/JPY the freedom to rally higher despite overbought conditions.

CAD/JPY is trading at 97.90 at the start of the 9/17 U.S. session, well above the price pivot area at 97.50 and the channel resistance trendline. Price movements have been slow ahead of FOMC, but another bullish acceleration is expected to be triggered towards the next resistance area at 98.80/99.10. The large psychological handle of 100 is a huge attraction point for buyers and we expect to see the uptrend continue until this target will be hit.

Support areas can be found by zooming-in on the 4H timeframe. Previous resistance of 97.50 should become support when tested from above, however 96.60 is the most recent Higher Low in this upswing and the actual level where traders will begin reversing from long to short positions. While CAD/JPY remains above 96.60, buying dips remains the preferred strategy for the month of September.

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