CADJPY Takes Off

The final quarter of the year is really kicking off with a bang and as we round out another week, there have been plenty of big moves to focus on. In the FX space, the big move that traders are focusing on is the explosive rally in CADJPY. The pair has moved more than 3% higher this week breaking out to its highest level since. So let’s take a look at what caused the move and why it was a great trade and, as ever, if you caught the move? Well done, if you missed it? Better luck next week.

What Caused the Move?

Oil Driving CAD

The big diver behind the rally we’ve seen this week is the rampant upside move in oil. The global energy crisis, exacerbated by supply chain issues, is sending oil prices soaring. Crude broke out to its highest level in over three years. With oil prices soaring, CAD is on a firm upward trajectory, prompting upgraded BOC tightening expectations which again, is feeding into higher CAD prices. With the energy crisis showing no sign of abating in the near term, the outlook for both oil prices and CAD remains skewed to further upside.

JPY Weakening

While CAD has been on a firm upward trajectory, JPY has come under pressure. Better strength in JPY as well as higher commodities prices, has seen JPY weaken on reduced safe haven. With the BOJ reaffirming its commitment to maintaining an easing presence in the market, the divergence in monetary policy outlooks between the BOC and BOJ means that there is plenty of room for CADJPY to trade higher in the near term. The rally in USD is hitting JPY much harder than CAD as a result of the support CAD is deriving from the oil rally. With this in mind, any further USD upside in response to Fed tapering is likely to further drive CADJPY higher. So, that’s the fundamental backdrop, let’s now take a look at the technical picture.

Technical Views

CADJPY

The breakout from the corrective bearish channel in CADJPY has seen the market exploding higher. The recent leg higher has seen price clear through several key levels. Price has now cleared above the prior 2021 highs at 91.60 level and is now close to testing the next resistance level at 92.74. With both MACD and RSI firmly bullish and with the retail community heavily short, there is room for price to continue higher here.