BOJ Non-Action Shocks Market ,CAD Slumps On GDP – Shorts Recommended

The pair CADJPY moved downward in today’s session without volatility after  modest monetary policy easing from the Bank of Japan on Friday (29/7), which disappointed investors who had expected more radical stimulus.

According to the data released on Thursday (28/7), Japanese consumer prices in fell by 0.5% in May – the sharpest pace since 2013. Core consumer prices index, which includes oil products but excludes fresh food prices, slipped by 0.4% in May, matching with economists’ median estimate for a 0.4% decline.These figures disrupted the central bank’s efforts to push the country’s economy into a position of price stability. The BOJ has struggled to bring inflation up to its target level, for nearly three decades. Markets had expected Japanese authorities to be  preparing to provide the so-called “helicopter money” cash to consumers in order to push inflation closer to the target of 2%.

However, the BOJ took an unexpected step contrary to market forecasts. The central bank said after its policy meeting on Friday (29/7) that it would increase purchase of exchange-traded funds. The bank announced that will purchase ETF’s at an annual pace of $56.7 billion, up from $31.35 billion yen previously. BOJ confounded market expectations of a hefty stimulus by maintaining its levels JGB purchases and keeping its main interest rate unchanged. The Japanese Yen surged by almost 3%, peak-to-trough in the 30 seconds following the Bank of Japan announcement.

On the other hand, data from Statistics Canada on Friday (29/7) reported that monthly gross domestic product plunged 0.6% in May, surpassing economists’ estimates for a fall of 0.4%. This represents the biggest monthly decline since March 2009. The wildfires that started in May around the Fort McMurray area in Alberta, disrupted production in the province’s oil sands,  thereby causing the bulk of the decline in the GDP of a commodity-reliant economy like Canada.

Additionally, the raw materials price index rose by 1.8% in June, much lower than the reading of 7% in May. The industrial product price index edged up by 0.6% in June, down 50% compared with the figure of 1.2% in May. The mostly negative data from the manufacturing sector dragged down the CAD against its peers, including the Japanese yen.

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Fig. CADJPY D1 Technical Chart

On the daily chart, the pair is trading at 78.569, down 1.76% from the opening price of 79.984. RSI (14) ticked down to the level of 40.7954, suggesting that the bearish trend is gaining in strength. The moving average is casting a shadow over the price chart, further consolidating a solid down move. Fibonacci retracement shows that the Canadian Dollar has broken the 23.6% level and is moving toward the 0.0% level against the yen.

Trade suggestion

Sell stop at 78.279, Take profit at 77.623, Stop loss at 78.515

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