A Tale of Two Banks

CADJPY has turned higher off the test of the 86.10 level support taking price back up into the middle of the bullish channel. The BOJ meeting overnight has seen fresh JPY weakness kicking in as the BOJ lowered its inflation forecasts once again. With inflation not projected to return to target at any point over the horizon timeframe, the likelihood of the BOJ removing its huge monetary easing over the remainder of this year looks low.

Alternatively, the BOC was recently seen reducing the level of its weekly bond purchases in light of the momentum in the domestic economy. The prospect of the Canadian economy picking up further raises the risks of increased tapering from the BOC and a move back towards tightening if there is no further escalation of the pandemic. Should CADJPY break above the 88.21 level there is room for a clear run up to the 89.24 level and a test of the channel top.

Key Data to Watch

With the BOJ meeting having passed, and little else on the slate this week for Japan, the focus is on CAD data. Retail Sales due tomorrow and GDP on Friday will be the key prints to watch with both readings forecast to have improved last month. Should data satisfy or beat consensus this is likely to see CADJPY continuing higher.

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