The Canadian dollar pulled back on Friday against the Japanese yen to reach the ¥101 level. The reason I am writing about this pair is that the Canadian dollar against the Japanese yen is an excellent way to trade the oil market in the Forex world. That being said, the most recent move has been more about the Bank of Japan and its quantitative easing policy, as they are trying to keep the 10-year JGB yield at 0.25% or lower. In other words, they have been “printing yen.”
If we see the crude oil market take off to the upside, this might be the perfect vehicle to trade that market if you do not trade oil itself. Not only will you have the Bank of Japan helping you, but the Canadian dollar is a proxy for crude oil, as Canada exports so much of the commodity. It is worth noting that we formed a massive shooting star during the trading session on Thursday, at the ¥102 level.
Looking at this chart, we could drop down to the ¥100 level, which is a large, round, psychologically significant figure. It is also an area where we had pulled back from previously, so it does make sense that we may have to retest it for “market memory” going forward. A pullback to that area that shows signs of support might be a nice buying opportunity, depending on the daily candlestick.
The market has been very bullish for quite some time, but it is worth noting that the trajectory of the bullish run is at a lower angle than it had been previously. When you look at this chart, it does look like we are getting close to a top, but I think it is probably only a matter of time before we pull back. A pullback would be a good thing because the market has gotten far too ahead of itself. It is also worth noting that the most recent inflation numbers coming out of the Canadian government over the last week have been extraordinarily bullish for interest rate hikes, which of course drives up the Canadian dollar as well. At this point, I look at any significant pullback as a value play that you can take advantage of.