The upcoming CPI release from Canada could provide an excellent opportunity for trading CADJPY, as the pair is consolidating tightly inside a triangle formation. Traders are likely waiting for the outcome of the inflation reports before deciding on a particular direction for this pair.
A break above the triangle resistance around the 91.50 level could spur a 200-pip rally for CADJPY, as this is roughly the same height as the triangle. On the other hand, a downside break below the 90.50 area could lead to a 200-pip drop.
The 100 SMA is below the longer-term 200 SMA, suggesting that the path of least resistance is to the downside. Stochastic is on the move down, which confirms that sellers are in control of price action, but the indicator is nearing the oversold region so a possible bounce might take place. Meanwhile, RSI is heading lower as well.
CADJPY Fundamental Factors
The headline CPI is expected to show a flat reading while the core version of the report could post a 0.2% uptick. Weaker than expected data could reinforce calls for another BOC rate cut before the end of the year, as the central bank typically reacts to inflation readings and attempts to shield the Canadian economy from further declines in price levels.
On the other hand, stronger than expected data could spur gains for the pair, as traders are expecting to see more momentum in the following month. Recall that oil prices recovered in September when the OPEC expressed willingness to make adjustments in production levels while US inventories revealed that oversupply isn’t a huge concern at the moment.
As for the yen, the BOJ statement this week sounded a bit cautious, as policymakers highlighted the risks stemming from China and emerging markets. The central bank also downgraded forecasts for output and exports, citing the potential downturn in demand and putting the yen on weaker footing.
To contact the reporter of the story: Samuel Rae at firstname.lastname@example.org