CAD/JPY

The market is still digesting the weekend G7 summit. With President Trump being so prolific on Twitter, and not shying away from confrontation, it is with a sense of nervousness that I look at the charts today to pick an outstanding opportunity. Bitcoin dropped around 11% on concerns over it's exchange in South Korea was hacked. That may bounce back fairly quickly and is worth a look. However, one chart that is looking very vulnerable to more downside is CAD/JPY. I like the potential for this trade, but the trigger to enter will need some fundamental or sentiment based drivers in the coming sessions. It is one to have your eyes on.

The employment data out of CAD on Friday was mixed.The employment data instantly sent CAD lower as it was a disappointing read at -7.5K from -1.1K in the previous month.This was the first back to back decline since 2014. However, the wages rose 3.9% YoY vs 3.2% expected. This supported CAD and it was bid after the initial drop on the employment. Trump is pretty fizzing with Trudeau and Trudeau has promised retaliatory tariffs agains the US. So, not a stable situation for CAD. Furthermore, Trump has been in a pretty difficult mood over the G7 summit and I echo Eamonn's thoughts that how long can this carry on before the markets retreat into risk off mode? However, despite the G7 show over the weekend, Asian equities have been bid and are up around 0.5% at time of writing. So, the market is shrugging Trump off and is getting used to his modus operandi. In the background OPEC is due to be meeting and it is widely expected that they will lift some production curbs at their next meeting in Vienna on the 22nd of June. This is weighing on Oil and WTI Crude is lingering around 65.50. So, if a few of these factors come together to form a confluence CAD/JPY could drop pretty fast.

CAD/JPY on the daily chart has rejected the 200 MA (red line) and the 100 MA (blue line). The price has formed a hidden bearish divergence set up on the daily chart and any fundamental trigger could cause a sudden drop in CAD/JPY. Risk can be defined to above the 200 MA. So, keep an eye on headlines for CAD, Nafta, Opec, and risk off sentiment. Any one of theses could prove the catalyst to more downside for the CAD/JPY pair.

Risks to the trade: Jumping in too early before a catalyst makes a case for more CAD/JPY downside.