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Thanks to positive geopolitical events, the markets have leaned risk-on throughout today’s session. That makes the pop higher in CAD/JPY one to watch for short-term pips, especially with oil inventory data ahead.

Intermarket Snapshot

Equity Markets Bond Yields Commodities & Crypto
DAX: 13092.22 +0.20%
FTSE: 6060.06 -0.73%
S&P 500: 3430.53 -0.02%
DJIA: 28223.25 -0.30%
US 10-YR: 0.692% +0.046
Bund 10-YR: -0.438% +0.059
UK 10-YR: 0.25% +0.035
JPN 10-YR: 0.032% +0.008
Oil: 43.16 +1.27%
Gold: 1953.7 +0.34%
Bitcoin: 11424.00 -3.07%
Ethereum: 384.96 -6.15%

Fresh Market Headlines & Economic Data:

U.S., China reaffirm commitment to Phase 1 trade deal after call

S&P 500 rises to another record, Dow gains 80 points

Oil prices edge higher on storm-driven output cuts, COVID-19 weighs

US Home prices show signs of recovery, rising 4.3% in June, according to Case-Shiller index

German GDP fell sharply by 9.7% q/q in the 2nd quarter of 2020

German New orders in main construction industry in June 2020: +12.4% m/m

The ifo Business Climate Index rose from 90.4 points (seasonally adjusted) in July to 92.6 points in August.

Upcoming Potential Catalysts on the Economic Calendar

Bank of Canada Schembri speech at 5:30 pm GMT
Fed Daly speech at 7:25 pm GMT
API Crude Oil stock change at 8:30 pm GMT
Australia Construction Work Done at 1:30 am GMT (Aug. 26)
Japan Leading Index at 5:00 am GMT (Aug. 26)
U.S. MBA Mortgage Applications at 11:00 am GMT (Aug. 26)
U.S. Durable Goods Orders at 12:30 pm GMT (Aug. 26)

What to Watch: CAD/JPY

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

On the one-hour chart above of CAD/JPY, we can see the pair breaking above a respected area of interest around the 80.50 minor psychological level. The break seems to have been fueled by today’s broad risk-on themes, likely driven by fresh headlines that the U.S.-China Phase 1 trade deal is still a go. So, will this break draw in more buyers?

Well, we don’t have a major catalysts that’ll likely driver broad risk sentiment, so the odds are pretty good could still have legs but after the sell off in the yen through the Asia and London sessions, we could be in for a pullback now.

If so, the area to watch on CAD/JPY is that 80.50 minor psychological level and see if technical traders do start to turn it into a broken-resistance-turned-support scenario.  If we don’t see a catalyst to turn broad sentiment, and the upcoming API oil inventory data turns out bullish for oil prices, then that area could hold for the bulls.

On the other hand, if we see a broad risk-0ff catalyst (e.g., U.S.-China relations sour, COVID-19 cases/deaths spike higher, extremely negative global economic updates, etc.) and a spike higher in oil inventories (a negative oil scenario), then look for a break below the 80.50 handle before considering a short-term short positions.

With a daily average true range of around 55 – 60 pips, a break there could easily take the market down to the range low around the major psychological level of 80.00 within a session or two.