CADJPY fell victim to a recent spout of risk-off sentiment and, indirectly, a push towards the US dollar. Overnight, commodity currencies were lifted by an unwinding of USD positions and better than expected PMI data (Ivey PMI increased to 63.1 from 52.2, beating a consensus estimate of 56.0). Yet, this was matched against a broad push towards the yen. In the end the drive towards JPY proved to be stronger than a rally in CAD. Hence, CADJPY added to its recent string of losses.

From a fundamental perspective, the CAD stands on firm ground. We expect the BoC to start raising rates early next year as the global recovery continues, and while the Canadian dollar may be considered overvalued, there has been no sign from the BoC that it’s about to intervene to the lower its currency. Also, with the BoJ engaging in record amounts of bond purchases, the likelihood of more buying later this year and the need for a weak currency in Japan, the long-term prospects for the yen aren’t great.

Technically, CADJPY is testing a key support zone around 93.00/50 – bottom of daily Ichimoku cloud and prior support and resistance zones - after pushing below key trend line support and its 100day SMA. From here support may be found around 91.20 – April low – and 88.55 – February low. However, RSI may be starting to look oversold and a rebound off the current support zone may see the pair test prior trend line support as resistance.

Source: FOREX.com