CAD/JPY Breaks 3 Key Support Levels

CAD/JPY Breaks 3 Key Support Levels

CAD/JPY Breaks 3 Key Support Levels

We are currently short CAD/JPY on the premise that the Greek No vote will drive more volatility and risk aversion in the financial markets. Oil prices were hit hard today, falling as much as 6% and when combined with the slower acceleration in Canadian manufacturing activity, the vulnerabilities of Canada’s economy become abundantly clear. Later this week, Canada’s employment report is scheduled for release and given the drop in the employment component of IVEY PMI, we are looking for a downside surprise. Back to back to weakness in Canadian data coupled with the sell-off in oil spells big trouble for Canada’s economy and in turn the Canadian dollar. At the same time, the one clear and unambiguous impact of the Greek crisis is reduced expectations for Fed tightening. Between the decline in oil prices and global market uncertainty, U.S. policymakers may opt to delay liftoff to December. We are still months away from the September FOMC but for the time being, the potential for a delayed rate hike could keep USD/JPY and in turn under pressure and minimize the impact of positive U.S. economic reports.

Technically today’s break in CAD/JPY has taken the currency pair below 3 significant support levels. The first was the 100-day SMA, the second was the 38.2% Fibonacci retracement of January low to June high and the third was probably the most significant -- the 50% Fibonacci retracement of 2007 to 2009 decline. While CAD/JPY could bounce off support at 96.50, the charts signal an eventual move down to 95.35 as long as the pair remains below 97.60, the level at which the 38.2% Fib and 100-day SMA converge.

Chart Of The Day

Leave a Comment

Your email address will not be published. Required fields are marked *