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Positive global risk sentiment and oil were crushed at this week’s open, prompting a big drop in CAD/JPY. Will volatility stay up to potentially grab short-term pips on this pair?

Intermarket Snapshot

Equity Markets Bond Yields Commodities & Crypto
DAX: 10705.06 -7.25%
FTSE: 6014.14 -6.94%
S&P 500: 2782.88 -6.38%
DJIA: 24154.71 -6.61%
US 10-yr 0.525% -0.249
Bund 10-YR -0.859% -0.131
UK 10-YR: 0.125% -0.107
JPN 10-YR: -0.134% 0.00
Oil: 33.52 -18.8%
Gold: 1675.5 +0.18%
Bitcoin: 7715.21 -6.05%
Etherium: 197.9 -4.81%

Fresh Market Headlines & Economic Data:

Upcoming Potential Catalysts on the Forex Calendar for U.S. & Asia:

  • U.S. Consumer inflation expectations at 3:00 pm GMT
  • New Zealand Manufacturing sales at 9:45 pm GMT
  • U.K. Retail sales monitor at 12:01 am GMT (Mar. 10)
  • Australia NAB Business confidence at 12:30 am GMT (Mar. 10)
  • RBNZ Governor Orr speech at 1:00 am GMT (Mar. 10)
  • China Inflation at 1:30 am GMT (Mar. 10)

What to Watch: CAD/JPY

CAD/JPY 1-Hour Forex Chart
CAD/JPY 1-Hour Forex Chart

The fall in oil prices is the story of the day after Saudi Arabia and Russia go into a price war this past weekend. This also took down positive risk sentiment as seen in the equity markets and bond yields, as well as commodity currencies like the Canadian dollar. As usual, the Japanese yen benefited from the massive spike in market fears, gapping most yen pairs lower in favor of the safe haven, and finding extra gains before stabilizing during the Asia trading session.

Looking forward for the rest of the session, there aren’t any top tier economic catalysts expected to shift risk sentiment, so it’s likely traders will stay in aversion mode for the rest of the session. But after such a steep drop, there could be traders out there looking to take profits / ride a very short-term bounce in risk assets if it happens. So, we could see opportunities for both sides.

If you’re a bear on the pair, it’s probably a good idea to wait for a bounce and resistance/bearish reversal before considering a short position. We’re watching the gap area between 77.00 – 78.25 for that type of behavior, and if it does play out as such, using a two day ATR as a stop guide makes sense given the big spike in volatility this week. And targeting the Monday lows around 74.00 still makes for a very interesting potential return-on-risk.

For the bulls, you’ve probably gotta think very short-term if you’re planning to buy on the idea of fading the drop to catch a bounce / profit taking. Going long from current levels (around 75.50) to target the bottom of the gap (77.00) makes sense if using a daily ATR stop for around 1:1 return-on-risk. Or if you want to wait for a retest of the swing lows, buying support may be found around 74.50 – 75.00, but you should definitely keep the stops tight in case traders see it as a potential breakdown in the works.