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After rallying nearly 4% since the 83.76 low it’s just the May high which stands in its way to clearer skies. And whilst the daily trend structure has appeared erratic in recent times, we see a few clues which hint at a bullish breakout.
Since crashing to the 2018 low, three prominent higher lows have formed to show that bullish pressure has been slowly building since March. Moreover, bullish momentum since the 83.76 low has increased and, without any obvious signs of a top, a bullish breakout could be close.
Switching to the 4-hour chart shows that WTI and CAD/JPY have been positively correlated for nearly three weeks. Furthermore, the 60-period rolling correlation is rising to show the relationship is strengthening and close to hitting 0.8 (a strong correlation). So, with WTI now above $70 we’re keeping an eye on CAD/JPY to follow suit.
Still, NAFTA talks continue to grind away in the background where a deal or breakdown of talks could spur volatility across CAD pairs. Also remembering that BOC continue to be “guided by data” and that “higher interest rates will be warranted”, it’s worth keeping an eye on data this week such as ADP employment later today and retail sales and CPI reads tomorrow.
But even if data is to turn against CAD, we favour an eventual upside break whilst above the 85.48 swing low. A clear break of which brings the Feb high into focus at 89.44.
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