Canada has been thriving from increasing prices in raw materials such as petroleum and coal. Prices have been climbing and manufacturing sales rose by 0.5%. However, how much can this growth continue and when will the central banks intervene.
Will their be interest rate hikes to curb inflation, lets take a look at the data to see what's going on.
The Logikfx technology summary page has identified an interesting bullish shift in data for CADJPY.
What we're seeing is the following indicators are showing bullish data:
Overall, what we can take from this page is a high level view that CADJPY is bullish and could continue to be bullish depending on market conditions. What we'll do now is dig deeper into the indicators and some of the commodity/company analysis to gauge whether the bullish sentiment is true or not.
Macro currency strength meter
Overall, the macro currency strength meter has shown very bullish signs for CAD over the past month. You can see on the blue solid line that the Canadian dollar has had strengthening fundamental data since the 2nd October 2021.
We're now at a point where the CAD is in a strong positive region on the strength meter whereas the JPY is a on weak negative region. A polar opposite shows that looking at CADJPY we should be focusing on bullish movements as the fundamentals suggest.
This is a great market filtration tool to focus on what positions are in line with fundamental data and market sentiment.
GDP Differentials Indicator
The GDP differentials indicator shows the difference in growth rates between Canada and Japan. What we can get from the data points is that Canada is looking to significantly outpace Japan going into 2022.
This is overall bullish for CADJPY as it shows Canada is growing at a stronger pace, increasing demand for the Canadian dollar.
Trade Analysis (Imports vs Exports)
"Teck Resources Ltd is a Canada-based company, which engaged in the business of exploring for, acquiring, developing and producing natural resources. The Company’s segments include steelmaking coal, copper, zinc and energy. The Company is a seaborne exporter of steelmaking coal, with approximately six operations in Western Canada. It has approximately four operating mines in Canada, Chile and Peru, and copper development projects in North and South America. It produces mined zinc, with approximately three operating mines in the United States and Peru, and owns one fully integrated zinc and lead smelting and refining facilities located in Canada. It also has an interest in producing oil sands mine in Alberta, as well as oil sands development assets."[Investing.com]
What we can see from the data is that over the past 10 years there's actually been a strong negative correlation of -25% between the two prices and a -9% correlation between the changes in their price. That relationship hasn't held true the past few year since 2016.
However, taking this into account we can see Teck prices following a strong positive correlation the past 5 years.
Using the most recent relationship we can suggest the rising Teck prices would suggest a upswing in CADJPY which agrees with our fundamental view.
Toyota as we know is one of Japans largest exporters and manufacturers of cars and other vehicles. There's no surprise we're seeing a 34% positive correlation between the two prices. Taking this into account we're actually seeing a slight dip in Toyota which means we could see CADJPY drop slightly.
This goes against our bullish view we gathered from the currency strength meter.
WTI is a commodity that Canada exports across the world and Japan being a major importer of oil it's a key indicator to use within the analysis.
What we've found is a huge positive correlation between WTI and CADJPY and with prices of WTI rising quickly over the past few months there's no surprise that CADJPY has been climbing too.
Again, what we can take from this is overall our trade analysis agrees with bullish sentiment.
Interest Rate Differentials Indicator
Overall, the interest rate differentials are in favour of a bullish move.
Canada have positive interest rates whereas JPY have negative interest rates.
This means investors may prefer to invest in Canada purely because they can gain some interest on the currency.
Stock Market Analysis
The stock market performance has been incredibly strong over the past 6 months, what we can see is the markets have since recovered significantly since the pandemic. However, what we may see is inflation now increasing as part of consumers spending more and borrowing more.
We can see the TSX increase from 80000 JPY to 120000.
Hedge Fund Positions
The hedge fund positions are starting to shift towards a bullish sentiment but we're not seeing a polar opposite open interest. This currently means that hedge funds are selling both the CAD and JPY.
What we'd expect is CAD open interest the blue line to be above 0 which means they would be buying the CAD. However, there's positive signs at leas that over the past week they've reduced their sell positions.
Currently, we're slightly bullish from sentiment but no clear outcome yet.
Currently CADJPY has shown bullish prices movements which have continued for the past 6 months. What we're interested in currently is to see prices rise. Based on the fundamental data alone CADJPY is bullish, prices show that buyers have already moved in.
Will we see a correction for our bullish sentiment or will prices continue, that's the question.
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