CADJPY had been trading inside a descending triangle pattern on its 4-hour time frame before the pair made a break below support. This suggests that further losses are likely, possibly triggering a downtrend of around 400 pips or the same height as the chart pattern.
The 100 SMA is below the 200 SMA on the 4-hour chart, confirming that the path of least resistance is to the downside. However, stochastic is already indicating oversold conditions, which means that a bounce back to the former triangle support at 94.00 is possible or even a move until the resistance at 95.00. RSI is also in the oversold area, suggesting that a pullback is likely.
If the downside break proves to be a fakeout, the pair could head back inside the triangle and possibly go for an upside break. In that case, a 400-pip rally could bein the cards.
Data from the Canadian economy has been mostly weaker than expected, with the monthly GDP reading showing a 0.2% contraction and confirming that a recession is taking place. Later on this week, Canada will release its July jobs report and its Ivey PMI reading.
Hiring is expected to pick up by 5.7K in July, a rebound from the previous month’s 4.6K decline. The unemployment rate is slated to hold steady at 5.8% while the Ivey PMI could show an improvement from 55.9 to 56.2, reflecting a stronger pace of expansion in the industry. Weaker than expected data could spur more losses for the Loonie, especially if oil prices are also tumbling by then.
As for the Japanese yen, there have been no major reports out of the country so far this week, leaving risk sentiment in play. Risk-off moves could continue to favor the Japanese yen, depending on how global equities and commodities fare.