The Japanese yen was by far the weakest currency in the month of March, with the USDJPY pair closing some 650 pips higher. As we discussed in the weekly analysis this Monday, there was a risk for a correction, which actually transpired following that brief touch of levels above 125.00.

Yet, despite the sharp correction in the past 3-4 days, the bullish trend is strong here, both from a technical and fundamental point of view. We’ll discuss the technicals below, while on the fundamental side, perhaps the biggest confirmation that this trend of JPY weakness can run further comes from Japanese officials (both BOJ and Ministry of Finance), who continued to say that a weak yen is good for the Japanese economy.

This is as clear a signal as we can get from the BOJ that they do not mind the recent fast depreciation of the currency, and they are happy to import some inflation from abroad. Indeed, inflation in Japan is still running below their 2% target, and – while this may change later this year – the trend of JPY weakness is here to stay for now. 

The Non-farm payrolls released earlier today showed the US economy remains in a robust state. This is putting renewed upward pressure on US Treasury yields, therefore, lifting JPY pairs via the “yields” factor. In the meantime, Canada’s economy is also running on all cylinders, and overall, appears even stronger than the US economy, a large part owing to rising commodity prices. With USDCAD breaking some important support levels, further CAD strengthening may be in store. 

A bullish trend in USDJPY and a falling USDCAD mean the odds are good for the CADJPY bull trend to extend higher.

 

Like all JPY pairs, CADJPY entered a consolidation after the high on Monday and retraced down by around 300 pips. But today CADJPY turned up and broke the falling retracement trendline. This is a trend-continuation signal by itself and means CADJPY may be starting a new upward leg of this bullish trend.

 

The fact that USDJPY is also showing trend-continuation signs following the NFP release today helps to solidify the bullish view here. Based on the charts, it looks that USDJPY can climb toward the 124.00 level and/or retest the 125.00 high. If the bullish trend extends here, then 130.00 could soon be on the cards.

Another important signal for trend continuation in CADJPY comes from the GMMA trend indicator (chart below). Here, on the 4-hour timeframe, we can see that the end of the retracement (break of trendline) happens just as CADJPY is testing the long-term group of GMMA moving averages (blue lines). 

 

These GMMA lines (which are just EMAs) act as an adjustable support zone during uptrends, and it seems this is what is transpiring here now. The short-term group of GMMA lines (red) “bouncing off” the long-term group is considered a trend-continuation signal. Accordingly, we can place a trailing stop for this trade just below the lowest blue line (60-period EMA).

 

Entry: 

• Long around current levels (98.30), or lower if the market provides such a chance

Stop loss:

• Trailing stop below the long-term GMMA group (blue lines). The lowest line (60-period EMA) is currently trading around 96.80, hence the stop can be placed several pips below it.

Targets: 

• 1st TP - 100.00 level zone;
• Beyond 1st TP, keep a trailing stop loss and target levels to new highs

 

 

 

Best Regards,
Philip

FX Trading Revolution
w: www.fxtradingrevolution.com 

e: [email protected]

 

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