The U.S. dollar made strong gains against the yen on Monday but was unable to close above a key resistance line. The pair briefly traded at its highest since August but gave back a portion of its gains to close below of the April high of 94.69.
We remain long CAD/JPY but note that even though CAD was the leader in the forex market today and JPY was the laggard, the pair was also unable to break out.
In any case, the price action was short-term bullish. Friday’s slump in stocks and late-day plunge left us questioning our negative JPY bias. It also set up a bearish spinning top formation on the daily charts. Monday’s trading neutralized that though and painted a conditionally bullish picture.
The key in the day ahead remains the resistance at 94.69 stretching up to 94.78. If we see some stops blown out we will be encouraged. What makes us hesitate, however, is that Japan is on holiday until Thursday because of the Golden Week festivities. Holiday trading is treacherous and prime for false breakouts.
If the market fails to make a clear break above 95 before Thursday’s Asia-Pacific session we will be very cautious. The Golden Week is traditionally a down time for JPY so we are on guard.