Canadian, Japanese Politics Could Drive CAD/JPY Higher
Ed Moya | Sep 27, 2019 15:53
Two key political stories could help drive CAD/JPY higher in the short-run. All the yen crosses remain vulnerable to a safe-haven market moving event, but right now we could be entering a small period of calm until the Oct. 10 U.S.-China high level trade talks.
It seems Democratic senators are looking to get the North American trade pact wrapped up, potentially delivering a much-needed win in red states. Democrats do not want the impeachment inquiry, which ultimately seems set to end at the Senate, to be the main reason USMCA does not pass. If the U.S. Congress passes the deal quickly, we could see both the Mexican peso and Canadian dollar rally.
Some analysts have downgraded their estimate of the likelihood of the USMCA passing due to the impeachment inquiry, but it seems Democrats need this ratified more than the president. Currently, only Mexico has ratified the agreement.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
Another big driving factor for the Canadian dollar is the recent volatility we have seen with oil prices, their largest export. West Texas Intermediate crude has now wiped away all the gains that stemmed from the Saudi oil field attacks. This key oil price gap has now been filled within two weeks and it seems price is tentatively finding support. The recent leg lower with crude prices occurred after Saudi Arabia agreed to a partial cease-fire in Yemen. This four-year war is unlikely to be ending soon and the risk premium is likely to return to crude prices.
The Canadian dollar could see a couple of tailwinds help drive it higher in the short-term.
The Japanese yen got crushed after the last tax hike and many investors are nervous the Oct. 1st 2% sales tax increase to 10% will cripple an economy that has already lost a ton of momentum. A fiscal pressure will likely derail a lot of the stimulative measures the BOJ has been delivering. The yen could remain vulnerable as recession risks will surge as consumer spending tumbles. We could very well anticipate a similar reaction to the yen that occurred during the 2014.
While geopolitical risks globally remain elevated, if we do not see a major risk-off scenario, the yen should remain vulnerable here.
Price action on the CAD/JPY daily chart shows today’s rally has cleared the 100-day SMA. If we see further upward momentum, initial resistance could come from the 83.00 region, which is where we could see the formation of both a double-top pattern and a bearish ABCD pattern. If valid, we could see a modest pullback before we see the next leg higher.
Get The App
If price is unable rally above 82.00 region, key support lies at the 80.50 region.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.