idea of the day may 25

To help you navigate the markets we are giving you our idea of the day. As we head into today’s Opec meeting, which should conclude late this afternoon, we are focusing on the FX market, and CAD/JPY.

Why? This pair is a play on commodity exporter vs. commodity importer. We believe that the Cad could benefit in the coming days and weeks from a continued improvement in the oil price on the back of an expected extension to Opec production cuts. This could benefit an oil producer like the CAD, while a higher oil price could hurt an importer currency like the yen. We also mentioned in our note yesterday: https://www.cityindex.co.uk/market-analysis/opec-and-fx/ that the Canadian dollar has the highest positive correlation with both Brent and WTI out of the major commodity currencies. Thus, if we see oil move higher in the coming days then we would expect the CAD to follow suit.

When? CAD/JPY is close to a key resistance zone around 84.00, which is a major resistance level and the 61.8% retracement level of the Nov – December uptrend. It is currently trading at 83.25. Considering the oil price has rallied into this Opec meeting, we could see some weakness if/ when the extension to the Opec production cut is confirmed. If that happens then we would expect this pair to fall, which could be a good entry point. Key support lies at 82.50 – a cluster of moving average support. If this pair does fall back to this level then we may see some buying interest. Any break above 84.20 (above the Fib retracement level) would be a bullish signal for this pair and could open the door to a move back towards 86.00 initially.