The rates continue within an uptrend with an impressive intensity. At the moment, the cost of the CAD/JPY pair has reached a multi-year high. The rates were higher than now only at the end of 2017, as well as in 2015, but now the situation on the market is completely different and there are certain doubts whether the Canadian dollar will have enough incentives to rise in price further against safe assets.
This week the Canadian dollar made a breakthrough, once again testing the resistance line. This was made possible by the results of the meeting of the Bank of Canada, which reported a likely increase in the rate next year, and not in 2023, as most central banks in other countries are planning. Oil rose in price in April and also stimulated the strengthening of the CAD. A factor that puts pressure on the Canadian dollar remains the situation with the slowdown in economic growth in China. Their index of the business activity fell to 51.1 pips in April, which is a bad signal for all commodity currencies. At the same time, oil seems to be at its peak at the moment, given the increase in oil production amid a weak recovery in the demand for oil.
This week was also a key one for Japan, where the Bank of Japan also held meetings, which, unlike the Canadian regulator, showed a traditionally soft approach to monetary policy. Analysts note that the position of the Japanese central bank is extremely passive, and economic indicators are far from the target levels. As a result, the JPY declined further against most currencies, although the last published reports were not bad. In particular, production volumes increased by 2.2% in March, although a decline was expected. So it's not all hopeless for the JPY.
The stochastic oscillator indicates the rates are in the overbought zone, and we believe that now is not the best time to buy the CAD/JPY. Given the high probability of a price correction, today we choose the deals to sell this currency pair. This is especially true given the upcoming publication of new reports on the Chinese economy next week, which have recently turned out to be disappointing and negatively affecting the value of commodity assets.
