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CAD/JPY: Double bottom or head-and-shoulders?

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A look at the recovery pair

A look at the recovery pair

CAD/JPY was the darling of the currency market for first half of this year but as the delta variant began to hit sentiment in June, the pair gave back a big chunk of its gains.

Today though it’s threatening a three-week high (it will need to break 88.29 to get there) and it’s a good time to revisit the CAD/JPY chart.

The main feature is the April/July double bottom at 85.34. It would need to get to 92.00 to confirm the bottom but if so we could be looking at a move to 99.00.

The worry though is that a head-and-shoulders top is forming. If it rolls over and breaks 85.34 again, then the measured target is just below 80.00.

Overall, I think this chart is a great gauge of the post-covid trade. If delta and other variants fade and the global economy continues to improve then there’s ample upside. For CAD, that could be compounded by high inflation and commodity prices as rate differentials between Canada and Japan widen.

The flipside is that delta or another variant causes a new wave of lockdowns with no end in sight. Right now, we’re halfway between the goalposts but moving higher and I think that’s right where we should be.

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