CADJPY Takes Off
]Another week comes to a close and we’re getting closer and closer to calling time on the first half of the year. In the UK, it’s been a holiday shortened week due to the double-length bank holiday taking place to mark the Queen’s Platinum Jubilee. However, it’s been far from a quiet week and we’ve seen plenty of noteworthy action. Chatting with traders ahead of the weekend, it seems the big move capturing the most attention in the FX space is the almost 4% rally in CADJPY. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If you missed it? There’s always next week.
What Caused the Move?
There were two key drivers behind the rally in CADJPY this week. The first was the uptick in CAD itself, fuelled by the BOC rate hike midweek and the reversal higher in oil prices. The second, is the weakness in JPY as a result of better risk-appetite and the BOJ’s continued commitment to maintaining an easing presence in the market.
BOE Rate Hike
The BOC was decidedly hawkish at its June rates meeting this week. The BOC hiked rates by .5% and signalled further such hikes will be coming soon enough with the bank noting that it might need to act more forcefully in order to tame inflation. The BOC has been among the more hawkish of the G10 central banks, after being the first to move on rates last year as price pressures started to creep upwards. Looking ahead now, CAD looks likely to derive further support from hawkish BOC expectations.
Oil Prices Recover
The rebound higher in oil prices has also helped give CAD a boost this week. Price were initially higher in response to news of the EU agreeing a partial ban on Russian oil. Despite reversing those gains, prices then rallied once again as the EIA reported a drawdown of roughly 5 times the depth the market expected. If oil prices remain bid near-term this should also keep CAD well supported moving forward.
Reduced Safe-Haven Inflows for JPY
On the JPY side, a better tone to global risk appetite this week saw diminished safe haven flows for the currency. With the US Dollar falling, equities were able to regain ground, bolstered too by news of Shanghai coming out of lockdown. Along with this reduced safe haven flow, JPY has also been weighed on by comments from BOJ’s Kuroda this week who once again reaffirmed the bank’s commitment to maintaining an easing policy, putting it starkly at odds with the BOC.
Technical Views
CADJPY
The rally in CADJPY this week has seen the market breaking out of the bull flag pattern, as per a recent Market Spotlight alert, and breaking above the 102.17 level also. With both MACD and RSI bullish here, and with the retail market firmly short, the focus is on continued upside near-term with 105.33 the next target for bulls.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.