CAD Recovers After Initial Selloff

Ultimately, I think we will break out and I don’t have any real interest in trying to short this pair anytime soon.

The Canadian dollar initially dropped Wednesday but saw a nice recovery late in the day. This lines up quite nicely with the oil markets, as they had initially sold off, but have also recovered quite a bit. Because of this, the market has jumped right back to its old correlation between crude oil and this market, so it does make sense that we would see the shape of the candlestick look the same in both markets.

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At this point, there is no reason to think that this market will not continue to go higher, because the Bank of Japan continues to fight interest rates rising in that country, meaning they are essentially “printing Yen” along the way. They are by far the loosest central bank in the world, so the Japanese yen will continue to pay the price. Furthermore, if there is more demand for crude oil out there, that benefits Canada, and it’s also worth noting that Japan imports 100% of its crude oil.

The ¥102 level looks to be supported, especially now that the 50-day EMA is rapidly approaching that level. This is a nice uptrend, and there’s no reason to fight what’s going on here. Waiting for dips that you can pick up a little bit of value in makes the most sense. It is worth noting that the ¥107.15 level has caused a minor resistant barrier, but there’s nothing from a psychological or long-term standpoint that suggests that we cannot break above that level and continue to go higher. In fact, I fully expect that to be the case, especially after the price action during the trading session on Wednesday.

With oil recovering the way it did late in the day, it does make sense that we would see the CAD/JPY pair continue to show signs of life. That being the case, if we can get some type of significant rally in the stock markets, that may help this pair as well. It’s worth noting that it was a strong balance during the day, so everything lined up for a nice recovery after some early selling during the Asian session. Ultimately, I think we will break out and I don’t have any real interest in trying to short this pair anytime soon.