The BOC rate cut triggered a sharp selloff for the Canadian dollar against its forex counterparts, with CADJPY falling to the 95.00 handle. Price seems to be due for a pullback though, as the recent lows appear to be holding as support for now.
Using the Fib tool on the short-term 1-hour time frame shows that the 50% Fibonacci retracement level lines up with a former support zone and the 97.00 major psychological level. Stochastic is moving up for now, which means that Loonie bears are exhausted and that bulls might be in control of price action. This could lead to a pullback until any of the Fibonacci levels before the selloff resumes.
BOC Rate Cut Price Action
The latest BOC rate cut is likely to result to more weakness for the Canadian dollar, as this would lead to lower demand for the currency. On the flip side, the BOJ decided against making monetary policy changes, which means that the Japanese yen could continue to stay afloat.
In addition, risk sentiment is favoring the lower-yielding currencies against the higher-yielding commodity currencies for now, as market uncertainty is keeping the safe-havens supported. There are no event risks for this setup today, as there are no reports lined up from both Canada and Japan.
The main catalyst for the day might be the ECB rate statement, during which the central bank could announce a large quantitative easing program. If so, CADJPY could resume its drop below the recent lows at the 95.00 handle.
On the other hand, lack of action could lead to massive unwinding, which might carry over to other major currencies. In this case, CADJPY could be in for a larger corrective wave or perhaps an upside break past the Fib levels altogether. The path of least resistance remains to the downside, thanks to the difference in monetary policy stance of the BOC and BOJ.
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