CAD Whipsaws Against Japanese Yen

Keep in mind that the crude oil markets have a major influence on this currency pair as the Canadian dollar is a proxy for that market for currency traders. 

• The Canadian dollar initially fell quite drastically against the Japanese yen as former Japanese Prime Minister Shinzo Abe was assassinated.
• While a tragedy, the reality is that it has absolutely nothing to do with the present situation in the Japanese economy.
• The market ended up rallying quite stringently, as the Japanese yen was sold off against almost everything. 

Impact of BoJ and Crude Oil

The Bank of Japan continues to buy unlimited bonds, and that has a negative effect on the currency as it is essentially the same thing as quantitative easing, or “printing yen.” Because of this, it makes quite a bit of sense that we would see this market continue to be more or less a “buy on the dips” type of situation, as we continue to try to find value. The ¥106 level is an area that was resistant previously, but it looks like we are becoming more and more aggressive on the breakout possibilities.

If we do break above the ¥106 level, then I think we have much further to go. Keep in mind that this is a strong uptrend and has been for a while. In fact, you can make an argument that this pair is quite a bit more sustainable than many of the other yen-related pairs, as it has not been quite as parabolic. On the other side of the equation, you have to keep in mind that the crude oil markets have a major influence on this currency pair as the Canadian dollar is a proxy for that market for currency traders. If crude oil rises, just as it did during the day, as a general rule this pair will rise right along with it as Japan imports 100% of its petroleum from foreign sources.

If we were to turn on a breakdown below the ¥102 level, that might cause a bit of a reset in this pair, perhaps even driving the CAD/JPY pair down to the ¥98 level, where would meet up with the 200-day EMA. The market breaking down below that indicator would be very negative, and would signify a trend change. However, it looks very unlikely at the moment.