CADJPY in Play

Short term bounce

By Joel Kruger, Technical Strategist for DailyFX.com

• Euro continues to chop around; no clear directional bias
• Yen gains have been impressive and leave room for some more upside
• Fed officials remain hawkish and upbeat despite softer NFPs
• Canadian Dollar takes hit on downbeat FinMin comments

The risk off trade continued to have a negative impact on the correlated commodity bloc currencies, with the Canadian Dollar standing out as the weakest of the bunch. Despite its lower yield relative to its commodity cousins, the Loonie took a hit and traded back below parity against the buck after Canada FinMin Flaherty projected only moderate growth in Canada this year and also cited risks associated with the Eurozone crisis. Perhaps the weaker performance in oil prices compared to gold also factored into the relative weakness in the Canadian Dollar. Looking ahead, the European economic calendar is razor thin, and as such, the markets will likely continue to trade off of the broader macro themes. As always, we will look to the Euro for directional insight over the coming day, and a break and close back above 1.3145 or below 1.3030 will dictate our outlook for the remainder of the week.  

Yen Fundermentals

Here we have the yen against the Canadian, Australian, and New Zealand dollars and we see the very strong bearish candles for today’s session as risk aversion picks up. That is an indication that this trend we’ve seen in late March and in early April has staying power, with the key fundamental impediment – the BOJ decision – out-of-the-way.

The unwinding of carry trade happens quite quickly. For all six of these JPY crosses our target could be reversion to the mean which for us would be the 200 daily EMA. That leaves a bit more scope for further downside in the USD/JPY, GBP/JPY, NZD/JPY, and CAD/JPY as the EUR/JPY and AUD/JPY have been leading the way down and have already reached the 200-daily EMAs.

The question is will there be much of a pullback, and whether equity markets are able to stabilize at all this week. Depending on the catalyst that causes them to do so, I would be looking at opportunities to sell any short term rallies in these JPY crosses.


16/04/2012

[15:40:57] Nick Valsamis:  Stronger 2H 2011 growth coupled with strong momentum in 2012 should see the Bank of Canada upgrade its growth outlook in 2012 to 2.2% from 2.0%, Nomura's Charles St-Arnaud said. That increased growth should also help to close the output gap in 2Q 2013, one quarter earlier than expected, St-Arnaud notes. And like nearly every other economist forecasting what BoC will say tomorrow, St-Arnaud expects the policy rate to remain at 1% with a "slightly hawkish" communique. There remains a risk the BoC could change its policy guidance, but "we believe that the mostly likely timing for the BoC to start hiking rates is in September," he said.