The upward trend lasting for 9 months, which arose due to rising oil prices and the Bank of Japan's stable monetary policy of negative rates, the opposite of what we are used to seeing in other countries, particularly in Canada, is under threat today. Therefore, the main question that interests us today is what to expect from CAD/JPY quotes in the future? Was yesterday's strengthening of the yen a price correction or a trend reversal after reaching its maximum?
This week, the Bank of Canada at its meeting announced a pause in rate changes for the third time. It is quite possible that there will be no increase at all for the already high rate, but on the contrary, 2024 will be the year of the rate correction cycle. Thus, the CAD came under pressure, especially given the rapid decline in oil prices, testing unimaginable lows of $70 a month earlier. Despite the good indicators of the trade balance, the surplus of which has doubled compared to the forecast in October, as well as the growth of the business activity index, the Canadian currency was unable to compete with the yen, the demand for which has increased after the perspective of changes in monetary policy next year.
The yen was in the spotlight this week after the consumer price index rose by +2.4%, close to the Bank of Japan's target. An increase in the rate would help reduce inflation even further, bringing it closer to the coveted 2.0%. Therefore, everyone expects appropriate actions from the Bank of Japan next year, also taking into account the readiness of officials to do this.
Most technical analysis tools, inspired by the latest news, are committed to short trades in favor of JPY. However, in the short term, we still choose Buys, expecting a correction after yesterday's fall. The Canadian dollar will also have the opportunity to regain lost ground thanks to a correction in oil prices, since oil can hardly be expected to drop below $70, despite weak demand at the moment.
