Loonie gains ahead of OPEC, non-OPEC production cuts

Earlier this week, the Statistics Canada reported a 0.3% m-o-m economic contraction in October. The news comes after four consecutive months of economic expansion. Analysts were expecting a growth of at least 0.1% in October. The disappointing economic data pushed the Canadian dollar lower against the Japanese Yen.

However, we believe that the cross is in the final leg of its downtrend and a bullish reversal may happen soon. The CAD/JPY, which is currently trading at 86.10, is expected to gain momentum for a variety of reasons provided underneath.

An increase in the price of crude oil would immensely assist the Canadian economy as energy exports accounts for nearly 25% of the export revenue and 10% of the GDP. In this regard, it can be noted that the 1.8 million barrel production cut agreement between the OPEC and non-OPEC members are expected to come into force from the coming Sunday onwards. Based on this, analysts anticipate the price of crude oil to move further northwards. Reflecting the opinion of analysts, in the past few days, the crude has started inching upwards. Professional traders are expecting the price to stay between $55 and $60 per barrel in the days ahead. Ultimately, the Canadian dollar is expected to strengthen due to an increase in the price of crude oil.

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In Japan, the Statistics Bureau reported a 0.4% y-o-y decline in the consumer prices in November. Analysts anticipated only a 0.3% decline. It can be noted that the consumer prices fell 0.4% y-o-y in the previous month as well. According to the Statistics Bureau, the Japanese household spending declined 1.5% y-o-y in November, compared with a decrease of 0.4% y-o-y in the previous month. The market expected the household spending to increase by 0.2%. More worrisome was the housing starts data. The number of new constructions increased only by 6.7% y-o-y in November, against the market’s expectation of a 9.6% growth. It was the lowest recorded growth in the past three months, and less than half of 13.7% growth reported in the previous month. Thus, fundamentally, we have a short-term bullish view of the CAD/JPY pair.

Based on the historic price chart, we anticipate the CAD/JPY pair to receive support at 86.10. The stochastic oscillator is coming out of the bearish zone. This indicates that the CAD/JPY pair would begin an uptrend soon.

So, a currency trader should go long to capitalize on the imminent uptrend of the CAD/JPY pair. The entry can be done near 86.10, with a stop loss order below 85.30. The long position can be closed near 87.30.

A binary trader can use a high or above contract to gain from the forecasted uptrend of the currency pair. The contract can be bought when the cross trades near 86.10. The trader should ideally choose January 8th or 9th as the expiry date of the contract.