On Tuesday, CAD/JPY fell below the lower end of a rising wedge formation, while yesterday, it broke below the 87.17 support barrier. Today, the rate hit support at 86.38, and then, it rebounded somewhat. Overall, the downside exit out of the wedge suggests that the short-term outlook has now turned negative.
A clear dip below 86.38 could signal that the bears are still in the driver’s seat and may see scope for declines towards the inside swing high of August 20th, at 85.74. The rate may correct higher from there, but if the bears are able to jump back into the action from below 86.38, then we could see another leg south and a dip below 85.74. This could carry larger bearish implications, perhaps paving the way towards the low of August 20th, at 84.67.
Looking at our short-term oscillators, we see that the RSI turned down and just touched its toe below its 30 line, while the MACD, lies below both its zero and trigger lines, pointing down. Both indicators detect strong downside speed and support the notion for further declines in this exchange rate.
Now, we would start considering that the bulls have taken the upper hand, upon a break above 87.88. This will confirm a forthcoming higher high and may initially target the 88.45 level, defined as a resistance by the high of August 11th. If that level is not able to stop the advance this time around, a break higher could see scope for extensions towards the peak of July 7th, at 89.14.
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