CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

Technical view: CAD/JPY’s rally is lagging…are we seeing a reversal?

Article By: ,  Head of Market Research
July 28, 2022 2:36 PM

Outside of the US dollar, the Canadian dollar has been the strongest major currency year-to-date, with the loonie benefitting from aggressive interest rate increases by the Bank of Canada and strength in the price of oil, Canada’s most important export. On the other side of the coin, the Japanese yen has been by far the weakest of the major currencies so far in 2022 as the BOJ stubbornly protects the yield cap on JGBs in an effort to stimulate inflation in the moribund island economy.

These fundamental trends show no imminent signs of reversing, but CAD/JPY’s chart nonetheless suggests that there may be an opportunity for one or both of these currencies to reverse some of this year’s moves.

As the chart below shows, CAD/JPY has rallied a staggering 1700+ pips since early March, and the pair closed above its 50-day exponential moving average (EMA) every single day over that four-month period. That said, the upside momentum has stalled over the last seven weeks, with rates generally consolidating around the 105.00 handle since then. Last week, bulls sought to push the unit to fresh 14-year highs above 107.25 but were unable to maintain the gains, creating a potential “failed breakout” at that level:

Source: StoneX, TradingView

Looking at the pair’s 14-day RSI beneath the chart, the indicator has formed a rare quadruple bearish divergence with price. For the uninitiated, a bearish divergence is formed when price makes a higher high but a momentum indicator makes a lower high; this setup shows waning buying pressure on each foray to new highs and is often seen as a precursor of a significant reversal once the trend breaks.

Moving forward, readers should monitor the bullish trend line connecting the lows over the last six weeks (currently around 105.30) as well as the 50-day EMA (104.25) for breakdowns to signal that the momentum is finally shifting in favor of the bears. A confirmed break through these levels could open the door for a retracement toward 100.00 or even the April/May lows at 98.25 next.

Meanwhile, CAD/JPY bulls should exercise caution unless the pair can break conclusively above resistance in the mid-107.00s in the coming days.

How to trade with City Index

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

  1. 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

  2. Search for the market you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024