This Loonie pair is testing the very top of its range just as Canada is gearing up to print its latest CPI report.
Now this inflation figure could be crucial to determining whether or not the BOC could keep rates on hold for longer.
So will we see a bounce or break for CAD/JPY?
CAD/JPY 4-hour Forex Chart by TradingView
Thanks mostly to rising crude oil prices and improved risk sentiment, CAD/JPY has been on a tear for the past few weeks.
In fact, the Loonie’s rally was enough to take the pair up to the top of its range visible on the 4-hour time frame. This is right around the the 100.50 minor psychological mark, which has held as a ceiling so far this year.
Are sellers about to defend the resistance again?
Stochastic is suggesting so, as the oscillator is indicating overbought conditions or exhaustion among buyers.
I’m also seeing a slight bearish divergence since Stochastic made lower highs while price has been drawing higher highs.
In that case, CAD/JPY could retreat from the resistance and slump back to the bottom of the range at 95.50 or at least until the area of interest around 97.00-98.00.
Of course it could still boil down to the outcome of the Canadian CPI report since these figures could set the tone for BOC policy bias in the coming months.
Recall that the central bank has been sitting on its hands over the past couple of meetings, refraining from hiking interest rates now that price pressures are slowing.
Analysts are expecting to see a bit of a pickup in headline CPI from 0.4% month-over-month to 0.6% in March, but it’s worth noting that the past couple of reports churned out weaker than expected results.
Besides, other measures of inflation such as the median, common, and trimmed CPI are slated to show declines. If so, the Loonie might be poised for another leg lower, as traders could price in a longer tightening pause from the BOC.
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