CADJPY has been forming an ascending trend channel on its 1-hour forex chart, as it made higher highs and higher lows.

A bullish divergence can be seen, with stochastic making lower lows.

MACD is also reflecting a pickup in buying momentum, as the indicator seems to be climbing. This could lead to a CAD/JPY bounce from the current 96.00 levels back to the top of the channel at the 97.50 minor psychological resistance.

At the same time, the 100 SMA is holding as support after having crossed above the 200 SMA, indicating that the uptrend might carry on. A break below channel support, however, might lead to a test of the longer-term 200 SMA. A drop below this area could confirm that the climb is over and that more losses are in the cards.

There are no major event risks for this trade setup today, although the Japanese retail sales report showed stronger than expected results during the Asian session. This might lend support for the yen for the rest of the day, yet the difference in monetary policy biases of the Bank of Canada and Bank of Japan might keep the pair afloat.

Bear in mind that the BOC recently acknowledged the pickup in inflation in Canada while the BOJ expressed its concerns that Japan might not meet its inflation target and that more easing might be necessary.

By Kate Curtis from Trader’s Way