Short term
Trade view / 06 September 2016 at 13:16 GMT

A yen for CADJPY

FX Consultant / IFXA Ltd

CADJPY popped after the US nonfarm payrolls report on Friday, and that spike snapped the downtrend line that had been intact since the beginning of May. The move above 79.80 (the 23.6% retracement of the May-August range) suggests further upside to at least the 38.2% level.

The Bank of Japan policy meeting isn’t until September 21. USDJPY slipped on Monday partly because of comments by BoJ Governor Kuroda noting downside risks to negative interest rate policies. However, he also reminded markets that he would do what it takes to achieve his 2% inflation target.

Meanwhile, on Friday, after the NFP report, Goldman Sachs chief economist Jan Hatzius suggested in a CNBC interview that the odds of a September rate hike have increased to 55% following the jobs report.

The Bank of Canada will leave rates unchanged at Tuesday’s meeting. The Canadian economy is showing signs of life, and Friday’s trade data supports the view of a third-quarter rebound.
The mix of bullish CADJPY technicals, the prospect that the BoJ keeps alluding to additional stimulus, and the ebb and risk of higher US rates should lift CADJPY.

Management and risk description

The key risk to this trade is if the Bank of Canada delivers a dovish policy statement and downgrades its growth outlook. The trade is vulnerable to renewed bearish USDJPY sentiment stemming from expectations of lower US rates for longer. It is also vulnerable to lowered BoJ stimulus hopes.

The trade will get stopped out if WTI crude oil prices fall below $40.00/barrel.

Trade idea parameters

Buy: ½ CADJPY at market (80.00), balance at 80.60

Stop: 79.30

Target: 81.45

Time horizon: 4 days

CADJPY 30-minute chart showing intraday uptrend and stop loss
Source: Saxo Bank

CADJPY 4-hour chart highlighting May downtrend line break and uptrend line
cadjpy Source: Saxo Bank 

CADJPY daily chart with Fibonacci retracement levels
cadjpy Source: Saxo Bank

CADJPY 5-year daily chart with moving averages
cadjpy Source: Saxo Bank 

— Edited by John Acher

Non-independent investment research disclaimer applies. Read more
06 September
izwansamba izwansamba
Kemah keming
06 September
SvsG SvsG
Hi Michael, is this trade view still valid at this level (79,60)
06 September
Michael O'Neill Michael O'Neill
If you haven't got into this trade-avoid it. This mornings US non manufacturing ISM data has spooked the market and US dollar long positions are getting squeezed.

If you are in it, I recommend lowering the stop loss to 79.05
06 September
Michael O'Neill Michael O'Neill
Note: Changing a trade's parameters when you have already put it on usually not a smart move.
06 September
SvsG SvsG
I'm not in.Thanks for your advise
06 September
AlexF AlexF
Hi Michael any view on EURUSD do we break 1.126 (high of last friday ) ?
06 September
Michael O'Neill Michael O'Neill
Hi AlexF: I think we are too close to 1.1260 not to see it break. I think the topside will continue to be probed while the uptrend from the end of July remains intact.
07 September
Michael O'Neill Michael O'Neill
UPDATE: This traded was stopped out for a .0075 point loss.due to the unanticipated reaction to the weak ISM non manufacturing data. Obviously this data was the "tstraw-that-broke-the-camels-back data for a lot of September rate hike hawks.
The second mistake was lowering the stop loss


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