CAD/JPY – Return to 95

CAD/JPY – Return to 95

CAD/JPY – Return to 95

We are looking for CAD/JPY to make a U-turn back to 95. There are 2 major events affecting the currency pair this week which Yellen’s testimony on the economy and monetary policy and the Bank of Canada rate decision. While the U.S. dollar traded higher after Yellen’s view that rates will rise in 2015, we believe that she will sound more noncommittal this week, downplaying the need for a September rate hike. If we are right, it should take the steam out of USD/JPY’s rally. At the same time, the recent decline in oil prices poses a risk for Canada’s economy and could even push the BoC to lower rates this week. Even if they forgo raising rates, they will most likely be bearish. There could also be a historic Iranian nuclear deal that would be bearish for the loonie because the deal would loosen the sanctions on Iranian oil production and exports in exchange for curbs on the nuclear program. As a result, we believe that CAD/JPY should be trading lower.

Technically, 97 is an important resistance level for CAD/JPY as it is the 50% Fibonacci retracement of the 2007 to 2008 decline. The currency pair is hovering not far from that level. If it breaks, there is still resistance at 98. On the downside, a move below 96 would take CAD/JPY back to 95.

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