USD/JPY, USD/CAD, CAD/JPY: Key levels heading into US GDP

The Fed meeting went pretty much as expected, with rates on hold and the central bank unwilling to signal any cuts. GDP data for Q4 is released later, which would be surprising if it is anything less than robust, which would simply underscore what leading indicators have been telling us: the US economy remain strong and inflationary pressures are creeping higher.

We will need to wait until tomorrow for PCE inflation data where the real volatility could lay in wait, which could lift the US dollar should core PCE come in higher than the 0.2% m/m as expected.   

USD/CAD technical analysis

The daily chart shows a strong bullish trend from the October low to December / double-top high before the market entered a sideways range. Few sideways ranges are perfect, and this is no exception. The baulk of the range has been between 1.4300 – 1.4460 with some noise outside of that area

While traditional technical analysis assumes a breakout will occur in the direction of the prevailing trend, experience can say otherwise. It is therefore interesting to note that attempts to break above the double top failed, leaving a bearish Marabuzo and elongated shooting star candle in its wake. A smaller shooting star also formed yesterday to suggest a hesitancy to break higher.

The 4-hour chart shows that bearish candles generally have the higher volumes, and that the CVD (cumulative volume delate) shows offers outweighing bids overall this month despite prices trying (yet failing) to break higher.

And until we are presented with a catalyst that is able to break the deadlock of this sideways range, my preference would be to fade into resistance levels until a breakout is accompanied with a worthy headline.

USD/JPY technical analysis

My downside target if 153 remains in play, but that is not to say it will get there directly from here without some bounces along the way. Besides, prices found support perfectly at the HVN (high-volume-node) at 153.72, and its latest attempt to retest that level appears unconvincing. A small bullish divergence has also formed on the daily RSI (2) to show a near-term loss of bearish momentum.

The 4-hour chart shows prices trying to hold above the monthly pivot point and the RSI (2) is teasing the oversold zoned, which brings the potential for a higher low on this timeframe. Therefore, today’s preference is to seek dips while prices hols above this week’s low / the HVN for a leg or two higher.

CAD/JPY technical analysis

To tie loose ends I would like to point out that if my preference is for short USD/CAD and long USD/JPY, it assumes that CAD/JPY would provide the stronger bounce over USD/JPY in a yen-weak environment.

The daily chart shows that CAD/JPY is holding above the December VPOC for the second time this week, to suggest support around 107. Even if we see prices move beneath the 107 today, the 106.78 low and monthly S1 pivot are on hand to provide additional support. And as long as we don’t see an hourly close beneath it, the preference is for CAD/JPY to perform a bounce and head for at least 108, with the monthly pivot point around 108.20 and the weekly VPOC at 108.662 also providing potential targets for bulls.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge