CADJPY Analysis (Jun, 2021) 6-Month Trend Continues
It's been a long 6 months since we last did a CADJPY analysis, in the previous update we had a strong bullish conviction that the market was reversing as investors flip to a risk on sentiment.
We're now approaching the end of 6 months and the bulls did as we expected, a large bullish trend emerged. We're now at a point where sellers came in a year ago hitting weekly/monthly level of resistance.
However, the fundamental data is suggest this CADJPY bullish trend to continue.
Let's find out why.
Logikfx Fundamental Summary
The Logikfx technology summary is a high lever overview of what the fundamental data is saying on a page. It gives us traders a quick glance on what to focus on and CADJPY is one of them.
The summary page encompasses all the major Logikfx indicators and technology into one page, including:
Macro currency strength meter (MCSM) - bullish
GDP differential indicator (GDP) - bullish
COT Report Analysis (COTA) - bullish
What the summary is telling us is that all the indicators are saying one thing... fundamentals are bullish.
Macro currency strength meter
The macro currency strength meter is one of our leading indicators in the market which analyses various economic reports into an easy to use currency strength index.
What we've seen across the past month is really interesting...
CAD showed a negative number meaning throughout all of May and most of June CAD was fairly bearish. It has now started to trend upwards reaching a pivotal moment of strength breaking the negative region and now showing positive signs.
On the flip side, JPY has had the opposite effect it shows JPY showed strength during May but has now started that downwards negative trend which means... investors are potentially risk on again.
This create our fundamental directional bias to be bullish on CADJPY in the next few weeks/ months.
We'll be keeping an eye on this position to see if the currency strength meter holds this trend or if it goes back towards a risk off sentiment.
Interested in the technology checkout our pricing page for more information.
GDP differential indicator
Logikfx's GDP Forex Indicato calculates the predicted Net Gross Domestic Product Differential (NGDPD), between two distinct national economies.
What we're seeing for CADJPY is that both 2021 and 2022 forecasts are showing bullish economic output in favour of CAD.
This growth is bullish for CADJPY agreeing with our original idea from the currency strength meter.
Trade analysis (Imports/Exports)
One of the manual tasks I do myself is to gather the correlation of major exports/ imports between countries and thus the effect it has on a currency pair. This is an important step in your analysis to consider with the technology aside.
Canada and Japan are very interesting countries to consider within this analysis. The main reason that Canada is a major exporter of WTI and Japan is a major importer of this product. Therefore, it makes complete sense to consider it within the analysis as we have done below.
Additionally, we've added Toyota and Teck as companies to analyse.
Toyota prices have maintained a strong bullish trend the past 10 years and it also holds a positive correlation with CADJPY.
The rising prices of Toyota further solidify a potential bullish move in CADJPY.
Crude oil (WTI) is one of the most important commodities to analyse for all CAD pairs.
It's seen as one of the main leading indicators for CAD which suggests here that CADJPY will not continue it's bullish trend past the technical resistance zone.
"Teck Resources Ltd is a Canada-based company, which engaged in the business of exploring for, acquiring, developing and producing natural resources. The Company’s segments include steelmaking coal, copper, zinc and energy. The Company is a seaborne exporter of steelmaking coal, with approximately six operations in Western Canada." [1]
The Canadian company actually maintains a negative correlation against CADJPY of -11% in the past 10 years of price change data.
What we're interesting in is the latest dip in Teck prices...
Taking into account the negative correlation, could we see a further bullish spike that most traders are not prepared for?
Interest rate differential indicator
The interest rate differential indicator helps traders identify the 'hot-money flow' between two currencies.
In this case the signs are bullish due to Japan holding negative interest rates which devalue their currency as investors would not gain anything holding that currency.
This is bullish for CADJPY.
Stock market analysis (S&P/TSX)
Overall, the domestic stock market in Canada has been climbing significantly since the initial dip in march. The stock market in Canada has grown over 40% since the trough which shows that the monetary and fiscal stimulus in Canada has worked wonders for the stock market.
The question is will this be sustainable and how will inflation handle the spike in consumer/business spending.
This shows positive bullish signs for CADJPY.
Commitment of traders analysis (COTA)
Overall, the COTA indicator has shown bullish market sentiment since early march.
Could this mean we're in for a longer term bullish move or has the market peaked in terms of how many long positions they can place?
Currently, we're seeing the market agrees with an overall bullish movement.
One key area to watch out for here is if CAD open interest (solid blue line) continues to be bullish.
Price trends
The price action for CADJPY has been pretty much bullish for the past 6 months.
There's been an interesting dip as prices reach a major resistance level seen in 2018... however as the fundamental data continues to be released it will be interesting to see if this holds or the fundamentals power through and drive prices higher breaking that level.
Thanks for reading the analysis, to support the free work we're doing please give it a like/ share it on any forums or groups you may think will find it useful - Matty
Analysis like this can be learnt on our beginner forex course.
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