A reversal chart pattern is very clear on CAD/JPY’s daily time frame, indicating that the recent downtrend is about to turn. The pair has formed a double bottom on this longer-term time frame, suggesting that an uptrend is about to take place if the pair makes a break above the pattern’s neckline.
This area of resistance, which is located at the 94.00 major psychological level, is holding for now. The pair was just rejected on a recent test to a high of 94.10 when Canada printed a weaker than expected jobs report and risk aversion returned to the markets.
CAD/JPY Technical Outlook
If the Canadian dollar stays weak in the near term, the pair might still make another bottom right around the 91.50 minor psychological support. Another bounce from this level would form a triple bottom pattern, still indicating a potential reversal from the previous selloff.
On the other hand, Canadian dollar strength might push the pair above the neckline resistance and indicate further gains for the CAD/JPY pair. Take note that the double bottom chart pattern is roughly 250 pips in height, as it spans from the bottoms at 91.50 and the neckline at 94.00. This means that the potential breakout and resulting rally could last by 250 pips as well. An upside break from the neckline could then mean a rally up to the 96.50 minor psychological resistance.
Data from the Canadian economy has recently showed some weak spots, but the currency might be able to draw support from the rebound in oil prices. The tension in Ukraine seems to be subsiding now, but here have been reports indicating that Russia is still threatening to restrict oil supply. If that’s the case, a speculated oil supply shock might keep supporting crude oil prices and the positively correlated Canadian dollar.
Another factor that could trigger an upside break is a strong improvement in risk appetite. This is also a likely scenario, as traders seem to be more optimistic following last week’s upbeat US NFP release.
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