CADJPY has been steadily climbing on its 1-hour forex chart, reflecting a short-term uptrend for the pair. Price has been treading above the long-term exponential moving average on the same time frame while the short-term EMA is also moving higher, confirming that the rally is likely to carry on.
For now, stochastic is pointing down, which means that price could retreat from its recent climb. The pair could test the long-term EMA support, which coincides with a rising trend line connecting the recent lows.
A bounce could take place around the 98.50 minor psychological level, which lines up with the trend line, long-term EMA and the 50% Fibonacci retracement level on the latest swing low and high. Once stochastic reaches the oversold area and turns higher, price could head back north as well.
The path of least resistance is to the upside, as the Canadian economy has seen significant improvements in the past months. This has been enough for the BOC to say that they are no longer looking to cut interest rates anytime soon, as their surprise rate cut earlier this year is already taking effect.
Meanwhile, Japan continues to post weak data, particularly in the consumer spending sector. Retail sales have shown a sharper than expected annualized decline for March, as the economy still hasn’t recovered from last year’s sales tax hike. Although BOJ Governor Kuroda said that they are discussing the technical details for an exit strategy, it seems that market watchers are not buying his upbeat outlook.
Should risk aversion continue to play a role in price action though, CADJPY could still make a break below the confluence of support levels. If so, the pair could be in for a longer-term drop, possibly until the area of interest at 97.00. But if a bounce takes place, CADJPY could head back to its previous highs near 99.50 and perhaps make new ones.
By Kate Curtis from Trader’s Way