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Zooming to the daily timeframes this week as we may see big volatility as we approach the end of 2021 and major risk events this week. That may bring CAD/JPY to a major area of interest this week that’s been both support and resistance in the past, and a few potential setups to watch for a longer-term play.

CAD/JPY Pullback to Major Support Area

CAD/JPY Daily Forex Chart

In Pip Diddy’s latest look at the Week Ahead, he pointed out that we’ve got a very busy central bank schedule this week, and while the odds are we won’t see major policy changes this week, any possible shifts in rhetoric may be enough to get the forex markets moving more than usual.

The upcoming statement from the Bank of Japan is likely the most notable for our watchlist pick of the week, CAD/JPY, and with an expectation of no changes and a likely cautious tone given the low growth outlook for Japan. We’ll be on the look out for the possibility that the BOJ may hint at scaling back emergency pandemic support, which may influence the growth outlook as well and contribute to lack of support for the Japanese yen in 2021.

We already heard from the Bank of Canada last week who despite high inflation numbers and a strong jobs update from Canada earlier in December , held off on hiking rates for now due to pandemic uncertainty and view that inflation is transitory. Despite that hold rate hikes for now, the outlook is that we will see rate hikes from the BOC in 2022.

With the fundamental picture favoring the Loonie over the yen, we think that the current dip in CAD/JPY may be a potential opportunity for a longer-term long position. Right now, the yen has been gaining ground on the majors due to Omicron variant uncertainty, and that may not last for too much longer as the very early reports so far show Omicron being much milder than other variants.

If this environment takes CAD/JPY to below 88.00 (a strong area of interest that has been both support and resistance), then that’s where we would start watching for bullish reversal candles IF the Omicron variant fears start to fade. This may take another couple of weeks or so, but if we see more data showing booster shots are effective at protecting against Omicron variant , then traders may start to look to rotate back into risk sooner.

And if CAD/JPY finds a reason to turn higher from current levels without a retest of the 85.50 – 88.00 area, then we’ll be on the look out for a break above the falling ‘highs’ pattern for a potential momentum long if global risk sentiment flips back positive.

What do you guys think? Is the short-term bottom for CAD/JPY right around the corner? Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.