October 1, 2021 14:32:39

The loonie has held up relatively well this week primarily due to stronger oil prices. After dipping yesterday, WTI has picked up again today as traders look to recent highs at $76.65 ahead of the July top at $76.95. Much may depend on what OPEC+ decide at their meeting on Monday. It is fairly safe to assume that the increase of at least 400k barrels per day is a done deal. The major uncertainty is if the cartel is willing to ease more aggressively in an environment in which rising energy prices are worrying policymakers around the world.

As well as the all-important upcoming NFP number, Canada also releases its employment data at the same time next Friday. The September report is set to point to a further recovery in the labour market after strong jobs growth in August. Indeed, the unemployment rate fell to its lowest point since the start of the pandemic.

CAD/JPY is a classic risk on / risk off currency pair. Traders turn to the yen as a safe haven and when spreads widen but look to short it when bond yields rise. CAD is strongly correlated to oil and should outperform those central banks who have committed to keeping low rates for longer, like the yen.

CAD/JPY holds above downward trendline

CAD/JPY threatened to break lower on three separate occasions over the summer. But April support around 85.45 has acted as strong mark with buyers stepping in to push the pair higher. The 200-day SMA also held up the pair in August after spiking lower to 84.68. We dipped below the widely watched moving average in the latter part of last month before rebounding again strongly.

This bounce back also took us through trendline resistance which had capped prices from the June highs. Bullish momentum has stalled for now with prices consolidating just below 88. First resistance is the 100-day SMA at 88.27 with the August high at 88.46. Trendline resistance now becomes support where the 200-day SMA lurks at 86.66.