CADJPY is in a rising channel on its 1-hour time frame but is already nearing the top of the range. Forex resistance at the 97.50-98.00 area might hold and push the pair back to the bottom of the channel.
Stochastic is already in the oversold area, which means that buying pressure is about to wane soon. If this happens, reversal candlesticks might form at the forex resistance, which would be interpreted as a sign that the recent climb is over.
Forex Resistance to Hold?
Shorting at 98.00 with a stop at 98.50 and a target at the channel support around 96.50 could yield a good reward-to-risk for a short-term countertrend play. If you’re bullish on this pair, you might be better off waiting for a test of channel support and a potential bounce back up to the top of the channel and forex resistance.
There are no major event risks for this forex resistance setup since there are no economic reports due from Japan or Canada. Risk sentiment might drive price action for the time being, with the latest FOMC statement giving an upbeat assessment and helping support risk appetite.
Contrary to their previous rate statement wherein Fed officials cited dollar appreciation as a potential catalyst for deflation, the latest FOMC announcement indicated that policymakers think that risks to inflation have subsided for now. Apart from that, they also acknowledged strong improvements in the labor market and said that the under-utilization of resources is diminishing. They also decided to end their quantitative easing program with the final $15 billion reduction in asset purchases while maintaining their pledge to keep rates on hold for a considerable time.
This indicates that the US economy might continue to stay resilient, enough to spur risk-taking among investors, and that the US central bank will keep monetary policy accommodative until the recovery has gained strong traction. This might continue to lift higher-yielding currencies like CAD against JPY if the sentiment is sustained.
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