Following the release of Bank of Japan's monetary policy statement from earlier today, the demand for the Yen started surging due to the admissions of Governor Kuroda and his colleagues.
Overall, the undertones of BOJ's statement signalled the likelihood of a protracted recovery for the Japanese economy. Additionally, the statement was intended to stress on the unpredictable nature of the coronavirus crisis, which continues to threaten the stabilisation process.
While the Yen is likely to continue advancing in the near future, as investors and traders weigh in on the prospects of a second (and possibly more severe) coronavirus wave, the situation is quite different for the Canadian dollar.
Firstly, the expectations for a possible bearish correction on the price of oil could affect the value of the Loonie. That is so because the two have a direct relationship, due to the fact that Canada is one of the biggest producers and exporters of the precious commodity. In other words, when oil tanks, the price of the Canadian dollar falls as well.
Secondly, today's monetary policy meeting of the Bank of Canada is expected to exert even more pressure on the already struggling Loonie. The BOC somewhat surprisingly decided to scale back its asset purchase programs in early June, despite the fact that the uncertainty stemming from the crisis continues to pose a significant threat to the tentative recovery process in Canada.
The BOC has to address the new developments that have transpired in the last month and a half, and possibly adjust its monetary policy stance. All of this is likely to increase the underlying volatility during today's trading session on all currency pairs involving the Loonie.
Hence, the purpose of today's analysis is to discern the likely impact of the two central banks' decisions on the CADJPY and to project the reasonable extent of the dropdown that is anticipated to form on the pair's price action.
1. Long-Term Outlook:
As can be seen on the daily chart below, the underlying price action has been quite subdued over the last several weeks. After having formed a Distribution range between the major resistance level at 81.750 and the 61.8 per cent Fibonacci retracement level at 80.557, the price action developed a new Markdown towards the 38.2 per cent Fibonacci retracement level at 77.965.
Subsequently, the latter morphed into the most recent consolidation range, which is encompassed by the purple rectangle. The longer-term projections of CADJPY's future price action envision the possibility of a dropdown towards the 38.2 per cent Fibonacci retracement (potentially even lower), as the aforementioned fundamentals continue to influence the underlying market pressures. Nevertheless, the possibility of a spike up towards the Distribution's lower boundary should not be disregarded as well.
CADJPY 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
The ADX has been threading below the 25-point mark since the 11th of June, which confirms the existence of a robust range-trading environment. Under these conditions, the price action is likely to continue bouncing up and down within the boundaries of the consolidation range. It also favours the establishment of a dropdown towards the 38.2 per cent Fibonacci retracement, due to its closeness to the range's lower limit.
Even though the Stochastic RSI indicator is nearing the 'Oversold' extreme and the selling pressure seems to be waning, this does not necessarily mean that a bullish reversal is due next. There is still spare capacity for the bears to continue driving the price action further south, which is inlined with the primary expectations.
2. Short-Term Outlook:
Notice the relationship between the underlying price action and the three moving averages on the 4H chart below. The 10-day MA (in red) is positioned below the 30-day MA (in green), which, in turn, is placed below the 50-day MA (in blue). This descending order illustrates the bearish momentum in the short-term.
Moreover, the expectations for continued depreciation of CADJPY's price action are further supported by the fact that the price action rebounded on the two occasions it tested the strength of the 30-day MA. The first time this led to the creation of a 'Shooting Star' candle, and the second to the emergence of an "Evening Star" candle.
CADJPY 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
Notice also that the underlying price action remains concentrated below the descending trend line. This confirms the longer-term projections for the development of a more substantial dropdown, which are also supported by the behaviour of the price action in the short run.
The most recent behaviour of the price action is quite reminiscing of a classic 1-5 impulse wave pattern, which is postulated by the Elliott Wave Theory. As can be seen on the hourly chart below, the last time the price action came close to the descending trend line, was when the peak of the 3-4 retracement leg was concluded. Hence, the broader pattern is likely to be finalised when the price action breaks down below the bottom at point 3 and thereby finishes the establishment of the pattern's final 4-5 impulse leg.
These expectations are further supported by the emergence of a 'Bearish Flag' pattern within the 4-5 impulse leg. The former is typically found during the development of downswings or massive bearish trends.
Finally, the bearish crossover on the MACD is congruent with the anticipations for extended bearish momentum in the near future.
CADJPY 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
3. Concluding Remarks:
The underlying fundamentals support the expectations for a new dropdown on the CADJPY's price action. Nevertheless, the possibility of a sudden reversal should not be wholly disregarded.
The first major target level for such a newly evolving downswing is encapsulated by the 38.2 per cent Fibonacci retracement level at 77.965.
Profit & Loss
Journal Entries
Jul 22, 2020 - Entry 1
CADJPY 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
- The analysis misconstrued the expected impact of the heightened demand for the yen, as a safe-haven asset, on the pair. The Canadian dollar, in turn, has a direct correlation with the price of crude oil. When the price of the commodity rises, so does the value of the Loonie. As was established in the previous journal entry, the price of crude oil was rising around the same time, so it made no sense expecting the CADJPY to depreciate.
- The analysis did a good job of pointing out the possibility for the formation of a bullish correction, however, the short-term projections were mostly imprecise. The analysis could have done more in explaining how the underlying trading setup would change if a bullish upswing emerged first before the price got ready to start depreciating.
Disclaimer: Your capital is at risk! Trading and investing on the financial markets carries a significant risk of loss. Each material, shown on this website, is provided for educational purposes only. A perfect, 100% accurate method of analysis does not exist. If you make a decision to trade or invest, based on the information from this website, you will be doing it at your own risk. Under no circumstances is Trendsharks responsible for any capital losses or damages you might suffer, while using the company’s products and services. For more information read our Terms & Conditions and Risk Disclaimer.
Over the past few weeks, the USD has lost nearly 800 pips against the JPY, driven by Japan's shift away from decades of negative interest rates. With the Bank of Japan raising rates for the second time in a row, investors are adjusting their positions to [...]
Despite its volatility, Silver remains in an uptrend. While not as dynamic as Gold, XAG often mirrors XAU’s movements. A Multiple Top has formed around $32.50, and history shows that the more a level is tested, the weaker it becomes, increasing the likelihood of a [...]
A combination of factors, including Trump-era tariffs, the emergence of DeepSeek, and a slowdown in GDP growth, has contributed to the recent pullback in the US30 from its record highs. From a technical standpoint, a Double Top pattern has formed around the [...]
Over the past month, Silver has experienced an impressive 13% surge, marking a strong bullish trend. Despite notable volatility and multiple pullbacks, the overall momentum remains firmly to the upside. This strength is further validated by the Golden Cross, a historically reliable [...]
The Swiss Stock Market has been on a remarkable rally, surging over 15% between December and January. At times, the price action resembled a near-vertical ascent. However, following the announcement of Trump’s tariffs over the weekend, Monday’s trading session opened with a [...]
Between October and January, GBPUSD experienced a significant decline, dropping by approximately 1300 pips. However, we now observe signs of a potential trend reversal. Over the past few weeks, the pair has rebounded by more than 400 pips, shifting momentum toward a [...]
For the past 1 month, the UK100 saw a fantastic 600 point rally! The occasional corrections only attracted more buyers, which is healthy for the current up trend and the RSI currently exhibits elevated demand. A 130 point correction started last week on Friday, dipped below the [...]
Over the past two weeks, Japan’s leading stock index surged 2,000 points, reflecting strong bullish momentum. However, this week saw a sharp sell-off, erasing nearly all gains since mid-January. Despite this drop, the decline stalled at the 61.8% Fibonacci retracement, a key [...]
There is a clear shift in the momentum in the Oil market, with the commodity dropping with nearly 10% for the past 2 weeks. The Death Cross, a classic sell signal, is indicating that sellers are indeed in control and we are lookin now at a strong [...]
The 350 pip rally for the past 2 weeks seems like a trend reversal for EURUSD, with buyers back in control. The strong bullish momentum is also confirmed by the Golden Cross, a historic buy signal. Corrections are healthy for the trend and we currently looking at [...]
For the past 2 weeks GBPUSD went up with 400 pips and this is why we believe we might be looking at a trend reversal. The strong bullish momentum is confirmed by the Golden Cross, a classic buy signal, which supports the hypothesis that [...]
The Death Cross formation in USDJPY signals a robust downward momentum, with the USD depreciating by 300 pips over recent weeks. Further declines exceeding 300 pips are anticipated, potentially reaching the 152.00 level. Despite several corrective pullbacks, the price has been unable to surpass the [...]
Following the formation of a Double Top pattern at the 21,930 level last Friday, the NASDAQ has experienced a significant decline, plummeting by nearly 800 points. This downturn has been primarily driven by unfavorable manufacturing data emerging from China, alongside the Bank of Japan's interest rate hike on Friday. The market reaction closely resembles the [...]
GOLD's uptrend has regained strength, with several factors supporting further gains. The RSI bounced from oversold levels and now stands at 65, signaling growing demand and increasing buying volume. Additionally, the appearance of a [...]
For the past few months, USDJPY gained 2100 pips! Then, about 10 days ago the USD started dropping and so far corrected with 300 pips, dropping down to 155.00. A local Double Bottom got formed and this level also aligns with the important [...]
For the past week, the US100 has surged by over 1,000 points, signaling strong bullish momentum. The RSI stands at 69, indicating high demand and buyer dominance. A bullish Golden Cross pattern has emerged, confirming the upward trend. Despite a brief correction yesterday, with the index dipping to [...]
The Descending Triangle on the 4-hour chart, typically a bearish signal, failed to materialize this time. Instead, the Triple Bottom support at 92,000 held strong, driving significant buying volume. A Golden Cross—a classic bullish indicator—confirms strong [...]
After a 300-point correction from its December highs, the SP500 appears to be rebounding as bulls regain control. This recovery is supported by positive economic data, including strong NFP numbers, low unemployment, and CPI readings meeting expectations—all favorable for stocks. Additionally, the earnings season began yesterday with [...]
For several months, the EUR has been trending downward, losing hundreds of pips. While occasional corrections to the upside occur, bears remain in control. The strong downward momentum is highlighted by the Death Cross pattern, a classic sell signal. Yesterday, we observed another [...]
The Dollar remains strong, with buyers firmly in control since the Fed's December comments hinting at fewer 2025 rate cuts. This drove a 400-pip rally in USDCAD, now facing resistance near 1.4450 as early buyers take profit. Corrections are part of healthy trends, and the pair is testing support at [...]
Today is CPI day, and technical analysis often falters on major news days. Nevertheless, here's our take on the US Tech 100: we anticipate a potential drop of 800-1,000 points. December's Fed comments triggered a selloff, with bears dominating the index for weeks. The strong downward momentum aligns with [...]
