CAD/JPY has been trading in a sliding mode since 3rd of October, when it failed to break above 89.20 for the second time in three days. Yesterday, the tumble brought the rate below the short-term upside support line drawn from the low of the 6th of September, and although the pair rebounded somewhat after hitting support at 87.00, the recovery remained limited near 87.45, with the rate retreating again. In our view, the break below the upside line, combined with the short-lived recovery, makes us believe that the short-term picture has now turned negative.
If the bears are willing to stay in the driver’s seat and push the battle below 87.00, then we may see the pair falling towards the 86.20 support zone, defined by the low of the 27th of September and the inside swing peaks of the 13th and 14th of the month. Another break below 86.20 could carry more bearish implications and is possible to set the stage for the 85.50 obstacle, near the low of the 18th of September.
Our short-term momentum indicators detect strong downside speed, corroborating our view. The RSI, already near its 30 line, has turned down and fell back below that line. The MACD lies below both its zero and trigger lines and shows signs that it could turn south again.
Now, in case the rate rebounds and moves above 87.45, we would remain cautiously bearish as we would still see a chance for the rate to get rejected from near the upside line drawn from the low of the 6th of September. We would like to see a decisive break above 88.00 before we start examining whether the outlook has turned back to positive. Such a move would confirm the pair’s return above the upside line and could initially aim for the 88.45 barrier. If that level fails to stop the rate from climbing higher, its break could open the way for the 89.20 zone, marked by the highs of the 1st and 3rd of October.
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