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:
- Coronavirus shock and oil price fall pummel world stocks
- Oil dives deep into contango as price war begins
- Canadian Housing Starts Declined in February 2020
- The total value of building permits issued by Canadian municipalities increased 4.0% to $9.2B in January
- US coronavirus cases top 500 as Oregon joins list of states declaring emergencies
- New York Fed raises size of repo operations for this week
- Germany says to help companies hit by coronavirus
- German trade balance falls to 18.5 billion euros (seasonally adjusted) in January 2020
-
German industrial production up +3.0% m/m in January
UK discusses possible steps to stem coronavirus spread: PM Johnson’s spokesman - Australian government stimulus package promises financial support ‘as fast as possible’
- Japan’s economy shrinks faster than first estimated on growing virus, recession risks
- Economy watcher sentiment hits 9-year low amid coronavirus outbreak
- BOJ’s Kuroda signals readiness to act as market rout heightens chance of easing next week
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
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.