July 22, 2021 14:48:32

The improved risk tone through this week has seen JPY give back some ground, though it is still vying with CHF as the best performing major this month. Was the swoon in risk markets merely a blip or something more concerning as the Delta variant forces markets to consider potential new lockdowns? The latter scenario will see investors flock to safe haven currencies. But the summer months are prone to head-scratching price action due to thin liquidity and stop-loss driven trading.

CAD/JPY downside risks still in play

This pair topped out at the start of June at 91.18 and prices have rolled over since. The mid-85 zone around the April low has provided near-term support with the drop through the lower Keltner band and RSI below 30 seeing a sharp pullback. However, trend strength indicators are still pointing lower across a number of timeframes. These oscillators suggest any rallies may be limited with the June low at 87.96 the first line of resistance. Bears will target the recent low at 85.42/5 ahead of the 200-day SMA at 84.82. If we do lose this support, we might see the Fib support level of the 2020/2021 rally at 84.45 fairly quickly.

EUR/JPY bounce is tepid

This pair’s high above 134 in June has seen a more abrupt decline with prices falling to levels not seen since March. The low at 128.59 stopped short of the 200-day SMA at 128.39 and prices have retraced back to the Fib level of the 2020/2021 rally at 129.89. This resistance tallies with the mid-June low and the zone of previous resistance from March and April. Sellers will look to take this down towards 127 if we break the recent lows while resistance above comes first at the 21-day SMA around 130.55.