Technical Sentiment: Bearish
Key Takeaways
- Canadian Manufacturing Sales declined 3.3%, while Foreign Securities Purchases surged to 10.2B;
- Yen bottomed against all major counterparts early on Thursday, signaling a correction is about to unravel;
- Canadian Core CPI and CPI are due to be released Friday afternoon, although traders are already pricing in the consensus;
- CAD/JPY targets 94.85 – 95.00 and above in the next trading sessions;
The currency rollercoaster continues with large volatility and extremely wide intraday swings. Price action is starting to show a large bullish reversal pattern following a 700 pip decline in CAD/JPY since September.
Technical Analysis
CAD/JPY sell-off overshot our initial support targets from earlier this week. After breaking below the 200-Day Simple Moving Average price spiked lower, eating through several clusters of orders located around 93.50 and 93.00. Although we observed a large trendline support line break during this temporary panic attack, CAD/JPY has now recovered above 94.00, retracing all losses incurred during the Asian and European trading sessions.
On the Daily chart a bullish Pin bar is starting to take shape. While it’s still early in the day to count this pattern as valid, correlated pairs are showing similar reactions amid extreme oversold conditions, partially confirming that market participants are not faking this time around.
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From a swing configuration perspective CAD/JPY ultimately failed to price in a Lower Low, which technically allows for a recovery as long as fundamental factors do not trigger another landslide. Immediate resistance is located around 94.87 – 95.00 and we expect a re-test of this level before traders head out for the weekend. Higher up, 95.53 and 96.20/35 are two viable targets for the rest of October.
This bullish scenario will be immediately invalidated by a bearish break below 92.74 – 92.89, in which case we expect to see 90.65 very soon.
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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets
