CAD/JPY traded higher on Tuesday, after it hit support fractionally above the 88.00 zone, marked by the low of October 6th. However, the pair remains well below the downside resistance line taken from the high of October 21st, and thus, even if we see some further recovery, we will stay negative overall.
The bulls may stay in charge for a while more, perhaps until the rate hits the 89.45 level, which is the high of November 28th and 29th, or until it hits the round figure of 90.00, which is fractionally above the inside swing low of November. Then, the bears may wake up and push for another test at around 88.00, the break of which would confirm a forthcoming lower low and perhaps trigger declines towards the 87.20 zone, marked by the low of October 1st.
Shifting attention to our short-term oscillators, we see that the RSI rebounded from slightly above its 30 line, while the MACD, although negative, has crossed above its trigger line. Both indicators detect slowing downside speed, which supports our view for some further recovery before the next leg south.
In order to start examining whether the outlook has turned positive, we would like to see a clear break above the 91.25 barrier, which is the high of November 25th. This will also confirm the break above the downside resistance line taken from the high of October 21st and may initially target the 91.65 barrier. If that barrier is not able to halt the advance, we could see the bulls travelling towards the 92.20 or 92.50 zone marked by the highs of November 4th and 1st, respectively. If neither area is able to stop them, then a break higher may pave the way towards the high of October 21st, at 93.00.
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