By DailyFX – CADJPY – Go Cad Go,Economic data was tepidly received on the session with the ultimate
Bank of Canada rate decision being the spark… … that sent the Canadian
dollar major soaring. Leading economic indicators remained
optimistically suggestive printing 3 percent higher, in line with both
estimates and previous figures with the most recent international
securities transactions data adding downside pressure. For the month,
net inflows were outweighed by domestic investors and their appetite for
higher returns from foreign investments. For the third consecutive
month, domestic investors sought out investment vehicles outside of the
economy resulting in a C$2.7 billion decline for the month. Especially
disappointing, the figure was far below estimates of a C$3 billion
figure. However, leading to the upside, policy makers passed another
rate hike of 25 basis points to push the short term benchmark to 3
percent. What furthered bullish sentiment were subsequent statements by
Governor David Dodge that further rate hike considerations look to
follow as the economy is running at full capacity and higher energy
prices will boost inflationary pressures higher to 3 percent at the end
of 2005.

Carry Trade Opportunity
Furthering buying interest, traders look to capitalize on the
increasing interest rate differential between the two economies. Now
with a 3 percent rate, and subsequent increases to come, the Canadian
dollar has a 300 basis point advantage against a currency bearing a zero
percent interest policy. Furthering the notion are expectations for
rates to remain at zero in the Japanese economy until the second half of
2006.

USDJPY

Traders Disregard Optimistic Data
In line with previous estimates, today's release of both leading and
co-incident indicators shed further optimism over the world's second
largest economy. However, with both being a compendium of previously
released data, for the most part, traders disregarded the figures and
concentrated on the more anticipated U.S. data releases. Nonetheless,
fundamentals still remain strong in the Japanese economy as the overall
country is expected to grow at a 2.1 percent pace for the year.

The Dollar's Day
Surprising to the upside, today's report on net foreign interest in
U.S. securities vaulted higher against previous estimates of $60 billion
in net inflows for the month. Printing a $91.3 billion figure,
investors remain confident that the widening U.S. trade balance is
adequately being financed, maintaining an aire of security in the
world's largest economy. Additionally, consumer price increases
rose the most in 15 years, prompting further interest rate hike
speculation in the short term. With the headline figure rising 1.9
percent, detailed attention was focused on the core figure as well.
Excluding the volatile food and energy components, inflation still rose
0.3 percent on the month against a flat reading in the previous period.
Coupled with statements by Fed President Yellen on a neutral rate of
3.5-5.5 percent, bullish interest remains high on dollar demand.

Technically Speaking
Breaking through formidable resistance of the 115 level, the currency
pair looks to be retracing slightly on the morning's move. As a
result, the aforementioned level now becomes the first level of support
on such a retrace. However, with most experts now calling for a 118 hit
on the break, a test or considerable consolidation over the 116 should
not be ruled out.

EURCAD

Fundamental Drive
Euro traders bid the currency lower on the session in light of
inflationary pressures that seem to be making their way throughout the
producer price level. Coming in line with the monthly estimate, at 0.5
percent, the figure sparked some nascent suggestions that ECB officials
may have to consider rate hikes in the short term. However, bolstering
the overall bearish notion was a ZEW economic sentiment survey that was
released to a negative bias. Expected to print a 42 reading, the
economic sentiment component dipped to a 39.2 release. Ultimately,the
dip looked to be attributed to political turmoil in the region along
with continued pressure from rising energy costs and unemployment.

Finalized Administration
With Chancellor Merkel finalizing her cabinet, many are wondering how
effective the decision making process will run going into the new
administration. Notably, six conservatives were selected for seats in
the new regime which may in fact make the incumbent's agenda harder to
implement. As a result, a continued stalemate on policy and further
weakness in the euro zone economy is anticipated.

Technically Speaking
Breaking through all three Fibonacci support levels in the session, the
cross looks to consolidate, if only momentarily, heading into the Asian
session. At this point, a retracement may be considered as the Canadian
dollar major looks overextended and ready to test formidable support
levels. Nonetheless, at this point, further downside looks probable
with a test at the October 13th low of 1.4019 a consideration.

By DailyFX