The Canadian dollar currency bounced back sharply from the 88.90 level against the Japanese yen, as the Canadian dollar strengthened broadly into the weekly price close as oil prices benefitted from news coming out of the latest OPEC meeting.
Both Brent and crude oil performed their highest weekly price close in over two year last week, meaning that traders are likely to turn bullish towards oil producing nations, such as Canada, who stand to gain from increased corporate profits and also employment.
Crude oil has also been racing higher at the start of the week already, which in turn has been helping the Canadian dollar gain much-needed strength on the foreign exchange market.
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Another factor that benefitted the Canadian dollar towards the end of last week was US dollar weakness. The greenback gave back a significant amount of its weekly gains after the release of the June monthly employment report.
Technical and fundamental traders have a strong candidate for a coming breakout in the CADJPY pair, as a multi-year trendline breakout was confirmed last week and the fundamentals of the Canadian economy continue to outshine Japan’s.
Currency trading is based on the foundation of pitting strength against weakness or weakness against strength when trading currency pairs. Shifts in economic trends and themes take time to develop, hence why breakouts take time to take place.
Everything appears to be in place for further CADJPY strength, and a potential parabolic breakout as the pair has all the elements in place to move into a much-higher trading range over the coming weeks and months ahead.
Furthermore, retail sentiment data currently shows that there is a massive one-way bearish skew towards the CADJPY pair right now. The ActivTrader Market Sentiment tool shows that some 95 percent of traders are bearish towards the CADJPY pair right now.
This is very encouraging for strong gains in the CADJPY pair as fading herd sentiment is often profitable. Historical data has shown that fading one-sentiment skews amongst the retail crowd has proved to be very lucrative.
CADJPY Short-Term Technical Analysis
The four-hour time frame shows that the recent weekly close above the 90.00 level could encourage traders to rally the pair back towards the yearly high, around 91.20, which would then form a massive bullish reversal pattern.
According to the overall size of the potential inverted head and shoulders pattern the CADJPY pair could explode higher by around 300 points if the bullish pattern is activated, placing the 94.00 level in focus.
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CADJPY Medium-Term Technical Analysis
Looking at the weekly time frame the CADJPY pair has finally broken above multi-year falling trendline, which means that the bulls could be preparing to take the pair much higher.
Just to underscore the importance of this trendline the origins of the trendline are formed by taking the 2015 to the 2021 trendline. This means that the trendline is a multi-year trendline. Watch out for an explosive move if a daily and weekly price close above the trendline takes place.
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