CAD/JPY rally foiled at the 200-day SMA, oil prices provide headwinds

CAD/JPY plunged -14.5% from the July high to August low in five weeks. Yet it has taken 14 weeks for CAD/JPY to rise just 8%, which suggest the rally from the September low is corrective and prices may be poised to break to new lows in the coming weeks or months. Two doji’s have formed, neither of which closed above the 50% retracement level of the prior selloff. The weekly RSI (2) is also overbought zone to further show the cross is making hard work of continued gains. And when I look at the daily chart, I see the potential for a reversal to begin taking place.

CAD/JPY reached a 4-month high by Thursday, but the 200-day SMA asserted its authority by acting as resistance before momentum turned lower. The week’s high also fell just shy of the monthly R1 pivot point, suggesting the 111 handle is a decent level of resistance for now.

There has also been a loss of bullish momentum in recent weeks. The rally form the 108 area shows CAD/JPY has made harder work of bullish gains, and the past two and a half weeks has essentially seen prices move sideways in a choppy range, with a false break to a new high last week. And this has allowed a bearish RSI divergence to form on the daily RSI (2) and RSI (14).

Furthermore, the gains on CAD/JPY have not been tracked with oil prices which remain a relative underperformer. And oil prices could continue to struggle if Trump pushes ahead with flooding the market with increased output. The BOJ are also slightly more hawkish, although they may refrain from being so should volatility remain elevated.

For now, the bias is to fade into rallies towards 111 in anticipation of as move lower towards 108. Whether we’ll see a larger move to new cycle lows likely requires much lower oil prices and a more-dovish BOC (or hawkish BOJ).

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.