CADJPY has climbed from the bottom of the ascending trend channel in an impulse forex wave from 96.00 to the 97.75 area. Price could keep heading higher as it is approaching the top of the range near the 98.00 handle.
Another divergence is forming, with stochastic making lower highs and price making higher highs this time. This bearish divergence may soon play out once the pair tests the channel resistance and shows signs of retreating in a corrective wave.
Forex Wave Forecast
Reversal candlesticks at the 98.00 major psychological level could confirm the potential selloff back to the 96.50-.97.00 support zones near the channel support. MACD is also reflecting a possible return in selling momentum, which might take the pair back to the 100 simple moving average support.
If a break below the channel support takes place, CADJPY could move on to test the 200 SMA support, which is near the 96.00 major psychological area of interest. A break below this region could indicate that the recent uptrend is already over.
On the other hand, a rally past 98.00 could be a sign that buying pressure is very strong and that CADJPY is in for more gains. After all, the short-term 100 SMA has recently crossed above the 200 SMA, indicating that bulls are in control of price action for now.
Event risks for this forex wave setup include the release of Canada’s monthly GDP report, which might print a flat reading and possibly force the Loonie to retreat. On the other hand, a stronger than expected growth figure could extend the impulse forex wave to new highs around 98.50 to 99.00.
Also lined up for today is the BOJ rate statement, which might reflect a bit of dovishness from BOJ Governor Kuroda. Recall that he recently hinted that further easing might be necessary if commodity and energy prices continue to weigh on Japan’s inflation outlook.
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