August 24, 2021 17:52:44
Risk on is still holding up which means oil is enjoying a second day of gains after yesterday’s 5.5% jump, the biggest one-day move in five months. With Goldman Sachs continuing to call for $80 Brent crude by year end, this positive commodity backdrop should help CAD.
Markets have warmed to signs that China and hot spot US states like Florida are starting to contain rising infection rates. The bump in sentiment could also have legs if Chair Powell is relatively dovish in his Jackson Hole speech, though there is a potential risk that he now sounds more hawkish than the recent market shift demands.
CAD/JPY rebounds strongly
The loonie is being driven by broad market sentiment and surging oil at present. This has seen USD/CAD potentially put a firm top in place at 1.2949. CAD/JPY has caught our eye over the past few sessions as a key risk on/risk off currency cross.
The pair tested and bounced back from major support at 85.45 last week. This level represents key lows made in both April and July and also the 200-day SMA. The firm rejection of lower prices also recoiled from an important Fib level (38.2%) of the March 2020 to June 2021 move at 84.58. Friday’s strong close saw a bullish hammer candle print, giving more support for a turnaround. The pair is now trading just below the next Fib level (23.6%) at 87.08, with bulls aiming for the August high at 88.46.
A long-term head and shoulders pattern has been developing over the past few months, but the neckline of the right shoulder has probably been negated due to the failure of the break last week to hold below support. The 85.45 level is again a level to watch for if sentiment sours, with the spike low at 84.67 offering major support below here.
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