Improved risk sentiment and higher oil prices could be supportive of CAD/JPY. So we're closely watching for a potential break higher.
Risk sentiment has been given a boost, thanks to the rebound from China’s PMI reads progress with U.S.-China trade talks. Naturally, this has been supportive of risk assets in general, but also for commodity currencies like the Canadian dollar. However, adding a further pillar of support for the loonie is higher oil prices. Therefore, in the current climate, CAD/JPY could be seen as a little undervalued so we’re watching closely for a bullish breakout.
The decline form the 85.24 highs came in three clear waves to suggest it’s corrective (and potentially a wave-2). The suspected retracement stalled around the 38.2% Fibonacci level, where a Rikshaw Man Doji mark a prominent swing low. Having now broken a retracement line and coiling at the highs, we see it’s potential to extend gains and head towards the 85.24 high. Keep in mind that the 84 handle could provide interim resistance, but with bullish structure on the four-hour chart developing nicely, we fancy it chances of breaking it in due course.
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