Short-Term Growth in CAD/JPY Ahead of Bank of Canada Meeting
Market Overview
Despite a decline in oil prices during the European trading session and rising expectations of an interest rate cut by the Bank of Canada on Wednesday, the Canadian dollar (CAD) has shown resilience against the Japanese yen (JPY). This upward momentum reflects the market’s cautious stance toward the Bank of Japan (BoJ), whose restrained tone has failed to provide robust support for the yen against the strengthening Canadian dollar. However, the upcoming Bank of Canada (BoC) meeting could potentially halt CAD’s rally, depending on the tone of its policy adjustments.
Technical Analysis
On the hourly chart, CAD/JPY has experienced a notable breakout from a flag pattern, signaling an increase in bullish momentum. The pair has reached its prior peak near the 106.894 resistance level, a critical juncture in determining the continuation of the current upward trajectory.
If the bullish momentum persists and buyers successfully breach the 106.894 resistance, the pair is likely to aim for the next key target at 107.162. A confirmed close above this level would pave the way for further gains, with subsequent resistance levels positioned at 107.313 and 107.446, corresponding to the Fibonacci extensions and prior structural highs.
Oscillators Confirmation
Momentum indicators reflect the current bullish sentiment. The RSI remains in bullish territory, supporting the ongoing uptrend but nearing levels that suggest possible overbought conditions. Similarly, the MACD has crossed into positive territory, with its histogram and signal lines diverging upward, affirming the strength of the buyers. Moving averages offer a mixed picture, with shorter-term averages trending positively while mid-term averages remain neutral.
Alternative Scenario
However, failure to overcome the 106.894 resistance could trigger a corrective phase. Sellers would need to push the price below the immediate support at 106.723 to signal a potential reversal. A sustained move beneath this support could drive the pair toward the lower support at 106.439, potentially invalidating the bullish setup and indicating a shift in momentum back to the downside.
Key Levels
- Resistance Levels: 106.894, 107.162, 107.313, 107.446
- Support Levels: 106.723, 106.439
Key Events to Watch
Wednesday’s economic calendar features significant events likely to influence CAD/JPY dynamics. These include Japan’s Producer Price Index (PPI) report and the Tankan Manufacturers’ Sentiment Index, which provide insight into Japan’s industrial sector health. Additionally, the Bank of Canada’s rate decision will be pivotal, with the market widely anticipating a 50-basis-point cut. If realized, this policy shift could reintroduce bearish pressure on the Canadian dollar, affecting its performance against the yen.
Conclusion
The CAD/JPY pair remains in a bullish stance as it tests the critical 106.894 resistance. A breakout above this level would open pathways to higher targets, while failure to sustain the rally could lead to corrective declines, contingent on upcoming fundamental triggers.
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