USD/CAD, CAD/JPY Due for Volatility

CANADIAN DOLLAR PRICE OUTLOOK: USD/CAD, CAD/JPY VOLATILITY TO RISE

• Canadian Greenback weakened significantly final week as market sentiment deteriorated
• USD/CAD and CAD/JPY value volatility is predicted to speed up within the week forward
• BoC price determination, BoJ financial coverage replace, US inflation knowledge, OPEC+ pose dangers

The Canadian Greenback confronted promoting strain towards key FX friends just like the US Greenback and Japanese Yen final week. USD/CAD value motion climbed 118-pips on stability whereas CAD/JPY plunged 165-pips. Canadian Greenback weak spot largely tracked a broad-based pullback in threat urge for food and deeper unwind of the reflation commerce.

Crude oil costs completed practically -1.0% decrease after being down as a lot as -5.5% mid-week, which weighed negatively on the Loonie as a consequence of the usually sturdy direct relationship between CAD and oil costs. The sharp decline in international bond yields benefited the Yen and helped drive CAD/JPY value motion decrease.

USD/CAD, CAD/JPY ONE-WEEK IMPLIED VOLATILITY SPIKES AHEAD OF US INFLATION DATA, BOC & BOJ DECISIONS, LINGERING OPEC+ RISK

Seeking to the week forward, markets predict Canadian Greenback volatility to speed up. That is possible as a consequence of high-impact occasion threat outlined on the DailyFX Financial Calendar confronted by USD/CAD and CAD/JPY. In truth, USD/CAD one-week implied volatility of seven.8% ranks within the prime 84th percentile of measurements taken during the last three-years and AD/JPY one-week implied volatility of 8.2% is above its 20-day common studying of 6.9%.

The upcoming Financial institution of Canada price determination can be on the prime of my radar with the BoC poised to additional taper its asset buy program. Slowing QE by greater than $1-billion from the present tempo of $3-billion may see a bullish response by the Canadian Greenback. Then again, tapering its asset buy program by lower than $1-billion would possibly disappoint BoC hawks and Canadian Greenback bulls. To not point out, the continuing OPEC+ impasse stands to maintain upward strain on crude oil costs, however headlines on any assembly being set or progress towards a compromise may see promoting resume.

That might create headwinds for the Canadian Greenback in flip. One other potential driver of the Canadian Greenback’s path subsequent week consists of the discharge of US CPI knowledge as this might strongarm USD/CAD value motion. Barring a materially hotter-than-expected studying on headline US inflation, merchants would possibly look to fade latest US Greenback energy, and the Loonie is positioned as a strong candidate to do that towards. Equally, protecting an eye fixed the BoJ price determination and yields, notably rate of interest differentials on Canada and Japan authorities bonds, may assist gauge demand for CAD/JPY too.

USD/CAD PRICE CHART: DAILY TIME FRAME (25 DEC 2020 TO 09 JUL 2021)

Chart by @RichDvorakFX created utilizing TradingView

USD/CAD value motion loved a breakout above descending trendline resistance final week, although the dearth of follow-through provides it a lesser diploma of credence. This corresponds with the higher Bollinger Band protecting a lid on advances. To that finish, the contracting Bollinger Band width speaks to potential for consolidation. Destructive divergence on each the MACD and RSI are equally encouraging technical developments for USD/CAD bears. Merchants would possibly look to the 20-day easy transferring common and mid-point retracement stage of the most recent bullish leg if USD/CAD weak spot comes into play subsequent week.

If Canadian Greenback promoting strain resumes subsequent week, nevertheless, the key forex pair will possible wrestle to deal with resistance posed by the 1.2650-price stage. This technical impediment is highlighted by April’s swing excessive and the underbelly of the 200-day easy transferring common. Invalidation of resistance on the 1.2650-price stage may unleash a breakout to the upside. Basically talking, that could be a situation value contemplating if US inflation knowledge exceeds forecast, the Financial institution of Canada delays tapering, and crude oil costs proceed going through headwinds.

CAD/JPY PRICE CHART: DAILY TIME FRAME (25 DEC 2020 TO 09 JUL 2021)

Chart by @RichDvorakFX created utilizing TradingView

CAD/JPY value motion staged a pleasant rebound to shut out a reasonably tough week for Canadian Greenback bulls. This helped CAD/JPY reclaim its 100-day easy transferring common. The Loonie seems to have suffered a technical break of ascending trendline assist, however to be honest, the most recent stretch of Canadian Greenback weak spot appears to be like a bit overdone. That is hinted at by the relative energy index.

Likewise, there may be bullish divergence on the MACD. Upward momentum may face pushback close to the psychologically-significant 90.000-price stage. That stated, sustaining the 87.550-price stage will possible be key to cut back the percentages of a deeper pullback. Failing to defend this assist stage may expose April’s swing low round 85.650.

— Written by Wealthy Dvorak, Analyst for DailyFX.com

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