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The Canadian dollar currency is starting to look increasingly bullish against the Japanese yen, as the CADJPY pair trades back towards the 90.00 level, marking a 200 point weekly recovery after last week’s massive 300-point drop.
A multi-year technical breakout could be about to take place, which has the ability to turbo charge the pair higher and make the CADJPY long trade one of the most exciting positions in the foreign exchange market right now.
The Japanese yen currency has been getting hammered on the foreign exchange market this week in reaction to last week’s Bank of Japan policy meeting and a return to risk-on market sentiment, and strong gains in global stocks.
It is particularly noteworthy that the US dollar has been gaining ground against the Japanese currency while other majors have actually been clawing back last week’s losses against the buck. This means that the Japanese yen currency is exceptionally weak right now, which bodes well for further losses amongst all the yen crosses.
On the fundamental front the Canadian dollar currency looks very strong still and could benefit from higher oil prices, and more tapering from the Bank of Canada. On the technical front, the Canadian dollar is still in a bullish trend against the US dollar, despite last week carnage.
Furthermore, retail sentiment data currently shows that there is a large one-way bearish skew towards the CADJPY pair right now. Traders are on the wrong side of the market as the pair starts to gain ground after crashing under the 88.00 level last week.
The ActivTrader Market Sentiment tool shows that some 93 percent of traders are bearish towards the CADJPY pair right now. This bodes well for further strong upside gains in the CADJPY pair. Historical data has shown that fading one-sentiment skews amongst the retail crowd has proved to be very lucrative.
CADJPY Short-Term Technical Analysis
The four-hour time frame shows that a massive, inverted head and shoulders pattern will form if the price reaches the 91.20 level. Inverted head and shoulders are bullish reversal or even bullish continuation patterns.
According to the overall size of the potential bullish reversal pattern the CADJPY pair could surge by around 300 points if the 91.20 level is broken, placing the 94.00 level in focus.
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CADJPY Medium-Term Technical Analysis
Looking at the daily and weekly time frame chart the price is approaching long time trendline resistance around the 91.00 resistance level.
Just to underscore the importance of this trendline the origins of the trendline are formed by taking the 2007 to the 2014 trendline. This means that it is multi-decade trendline. Watch out for an explosive move if a daily and weekly price close above the trendline takes place.
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