- Loonie set to run higher against Japanese yen
- Yen is worst performer against US dollar
- Canadian GDP likely to come in negative on Wednesday
Free forex signals – our first of the week is the CADJPY pair and we have the entry, stop-loss and take profits levels for you. But first, what’s the case for the near-term buy?
The Canadian dollar begins the week on the front foot but that could change on Wednesday when the GDP figures come out.
The Loonie is catching a tailwind from strong prices emanating from the energy complex and the run up in commodity prices, But as seen elsewhere, those normal parts of the equation as far as pricing the currency against its international competitors goes, is these days set alongside the latest developments on the Covid pandemic.
For Canada, the vaccine roll out is picking up the pace but the economy is still recovering from the most recent lockdown, which is why the GDP data is forecast to be negative, with a contraction of -0.9% expected by economists.
In other economic data, out on Wednesday there will be information on production and raw material prices, which may help to provide some indication of the direction input prices are moving in.
Core inflation in May rose to 2.8% in May, up 0.5% on the previous month. and analysts have since then been revising upwards the Canadian inflation numbers. For example, FocusEconomics Consensus Forecast analysts, have bumped up their forecast from 2.0% to 2.2%.
Japanese yen stuck in the doldrums – worst performer against USD in H1
Meanwhile the Japanese yen remains the outlier among the major currencies, which reflects the anomalies seen in its economy compared with other advanced countries. It is the worst performer against the US dollar of all the major economies.
Inflation in Japan remains skewed to the deflationary side, with the Core CPI only turning positive by a whisker in May at 0.1% – it has been negative since August.
The economy has failed to register growth either. GP quarter on quarter fell a whopping -3.9% in the first quarter and PMI reading remain stuck below 50. A reading below 50 indicates a contracting economy. Flash composite was 47.8 in June, -1 on May’s 48.8. By way of contrast, US PMI on manufacturing and services is in the low 60s.
Against this background then – and the weakening that followed the scare over Fed tightening two weeks ago, which saw CAD/JPY lose value, it has recovered strongly since then.
The correlation between the yield differential and USD/JPY has also been strengthening in a positive direction, which means the wider the differential between the US Treasury 10-year and the Japanese Government Bond 10-year, the higher USD/JPY trades.
The pair may be set fair to break out of the mild downtrend seen since the beginning of June, with a push towards 91.153.
Free forex signals – Buy CADJPY
Instrument: CAD/JPY
Order: BUY STOP
Entry price: 90.432
Stop Loss: 89.788
TP1: 91.153
Recommended Risk: 1%
Risk / Reward Ratio: 1:1.12
Signal validity period: Good until cancelled
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