2020 will be known as the year an unknown virus bought the global economy to its knees in a matter of a few weeks, destroying growth, decimating upbeat markets, and drawing comparisons with the Great Depression of the 1930s. The ensuing lockdowns to prevent a further spread of the Covid-19 virus saw economies around the world go into lockdown as economic growth slumped and unemployment soared ever higher. Looking ahead into 2021, as multiple Covid-19 vaccines come to the market, this may well be the year that global economies recover, at least partially, from one of the worst setbacks in decades.

One notable mover over the first quarter of 2020 was the price of oil which slumped as the economy went into lockdown. Indeed, at one point in late-April, the price of US crude turned negative for the first time in history as traders shunned the oil contract on fear of having to take physical delivery of barrels of oil (OIL). This hammered petrocurrencies – currencies that are heavily impacted by moves in the price of oil – including the Canadian dollar.

On the other side of the coin, various currencies performed strongly throughout 2020 due to their perceived haven status, a place to store money in times of trouble. These currencies include the Japanese Yen, Swiss Franc, (FXF) and the US dollar (UDN, UUP).

So looking ahead to next year, I’ll look at a long CAD/JPY trade, a trade that hopefully benefits from the nascent economic recovery. I’m looking for both sides of the FX-pair to perform with the Canadian dollar appreciating alongside an uplift in the price of oil, while the Japanese Yen may depreciate as risk appetite picks up again.

The daily CAD/JPY chart shows the pair range trading over the last six months with recent price action favoring the upside. The pair are now above all three moving averages which, importantly, have now all moved into a sequence (20-/50-/200-dsma) suggesting a positive sentiment in the market. A series of medium-term higher lows are clearly identifiable on the chart and a break and close above the three lower highs at 81.427, then 81.585, and finally 81.911 would give an additional boost to the upside and leave 84.746 as the next target. The downside is protected by the three moving averages (FXC, FXY).

CAD/JPY Daily Price Chart (January – December 2020)