CADJPY recently hit us with a surprise rally that was good for 170 pips over two sessions. While I was expecting a bounce at the 94.50 support level, I doubt anyone expected to see the pair back to 96.12 so soon.
Despite this move, I maintained my overall bearish bias along with my short position from 98.00. And in fact during yesterday’s session we started to see this rally running out of steam ahead of today’s Canada GDP print that is scheduled for 8:30am EST.
What does the slow down in the rally mean exactly? We will have to wait and see, but often times technicals will precede fundamentals, in which case it could be hinting at the idea of a move lower. While this is not always the case, it does happen quite often, the same way a bullish or bearish pin bar forms ahead of supportive event risk.
A weaker than expected GDP print would also bode well for the USDCAD trade idea mentioned yesterday. The pair is once again pressuring the 1.3063 resistance level with a break there opening up a whole new range for the pair in the weeks ahead.
But as any follower of Daily Price Action knows, I never recommend attempting to front run a major news event such as a GDP release. On top of that, yesterday’s price action did not produce anything that would have us think a move lower is likely.
So what is the play, you ask?
For that we can go back to previous commentary regarding CADJPY. The 94.50 level held as support for the second time this month, making it a prime level to watch for a break lower.
If on the other hand we see a positive GDP print tomorrow we could see CADJPY climb back above the 96.12 handle. However due to recent weakness in the pair this would simply put me on the sidelines waiting to sell at higher levels.
Summary: Wait for a daily close below 94.50 and then watch for a selling opportunity on a retest of the level as new resistance. Key support comes in at 93.00, which is represented by the trend line from January of 2013.