Technical Sentiment: Bullish

Key Takeaways

• Japan Household Spending y/y, Unemployment Rate and Tokyo Core CPI y/y will be released during the Asian session, with an overall bearish bias for the domestic pair;
• Canada GDP for October, expected at 0.0% will be released on Friday;
• CAD/JPY is overbought, trading into a major price pivot line at 97.70;
• 99 and 100 are possible targets on a break above 97.70.

After two weeks defined predominantly by large rallies, CAD/JPY has finally reached a crucial resistance level that will probably set the overall direction for the first half of November.

Technical Analysis

Half way through the 30^th/10 U.S. session, CAD/JPY spot is currently trading around 97.70 as buyers test a major price pivot zone. From a technical perspective this rally appeared likely to exhaust on the first resistance touch based on the size of previous bullish swings. Stochastic has already entered overbought territory on Daily, indicating a temporary top followed by a correction should materialize in the near future. That being said, price action has to confirm this view in the end.

CAD/JPY respects a configuration of higher lows and higher highs on 4H timeframe and a steep trendline offers support at 96.75/85, with a secondary support cluster formed around 95.80 (38.2% Fib, 50 & 100 Moving Averages on 4Hour and a small pivot zone). These targets should only be considered in case of a strong bearish rejection from off 97.70/90.

On the other hand, for a solid uptrend continuation, CAD/JPY buyers should patiently wait for price to stabilize above 97.70 and for a second confirmation in the form of a re-test followed by a bullish rejection. Only then higher resistance levels around 99.10 – 100.00 should be considered as proper targets for the immediate future.

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Prepared by Alex, Currency Strategist at Capital Trust Markets