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The Canadian dollar currency is starting to correct lower against the Japanese yen, despite a big recovery in the Canadian currency, following the extremely hawkish November policy meeting.
Earlier this week the Bank of Canada warned that inflation will stay higher for longer than it previously forecast and signalled that an interest rate hike may be coming sooner than expected, causing the Loonie to briefly rally.
The central bank noted that it now forecasts that annual inflation rates will continue to rise through the rest of year, averaging 4.75 per cent, which is up from its previous forecast of 2.4 per cent.
According to the policy statement supply chain issues have pushed up costs for companies and limited the supply of in-demand goods. The bank now expects the worst of supply problems will come to a halt at the end of the year.
From a technical perspective, the CADJPY pair is one of the most interesting on the foreign exchange market, due the fact that a huge bearish price pattern has been invalidated
The price has now come down to the head of the head and shoulders pattern, which is pointing to a potential 500-point breakout. This is interesting because traders are wholesale bearish despite the breakout.
Retail sentiment data currently shows that there is a major one-way bearish skew towards the CADJPY pair right now. The ActivTrader Market Sentiment tool shows that some 97 percent of traders are bearish towards the CADJPY pair right now.
This is very encouraging for those finally looking for a breakout in the CADJPY pair to hold out. Retail traders are often on the wrong side of the trend, so it could mean they are about to get crushed.
CADJPY Short-Term Technical Analysis
The four-hour time frame shows that the CADJPY pair has formed a fairly sizable, inverted head and shoulders pattern, which was activated last month after the price moved above the 91.30 level.
Looking closer at the pattern and measuring from neckline to head, it indicates that a 150-point move will take place, causing a rally towards the 93.00 resistance level. For the record, the pattern appears to have reached its target now.
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CADJPY Medium-Term Technical Analysis
Looking at the daily time frame the CADJPY the overriding theme is a massive head and shoulders pattern that was invalidated recently, after bulls cracked the 91.00 level.
This pattern strongly indicates that a huge 500 point price move towards the 96.00 area could be forthcoming. Overall the price movements around the 91.70 to 91.00 price range will decide.
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