As much as I am a CAD bull from a structural point of view, one can really ignore the technical implications when it comes to the charts.
The latest drop in CAD/JPY today firmly takes out daily support from the 8 July low @ 87.10 and there isn't much stopping the pair from a test of the April low @ 85.42 next.
The drop today is exacerbated by weaker oil in a drop by nearly 3% as price pulls back from recent highs with OPEC+ formalising a deal over the weekend. I'd argue it is more profit taking on the oil front after the rally from months on end.
Adding to that is a stronger dollar and yen, aided by softer risk sentiment as well.
That's a good combination for a pullback in CAD/JPY, adding to the seemingly more "neutral" BOC last week, by not delivering any major hawkish undertones.
So, what's next for the above pair?
As much as the latest pullback is worrying and keeps sellers in charge, the April low @ 85.42 will be a key make-or-break point, alongside the 200-day moving average (blue line).
Those will be where I draw the lines for any major shift in sentiment for the pair in the long-term, as much as the domestic fundamentals are still solid for the loonie.
The BOC is taking first steps to tighten policy and with vaccination rates on point, the Canadian economy looks primed for a sustained recovery.
That said, it needs the global economy to keep pace - especially commodities - and if the Fed can also nudge forward with normalising policy, that will help quite a lot.
However, one can't simply ignore the charts either and that is the message that needs to be heeded for dip buyers over the coming days/weeks.