CAD/JPY

Crude Oil Prices Recede For Third Day:  Crude oil futures receded for a third day as expectations rose on the notion that currently high gasoline futures would hamper near term consumer demand.  In Asian electronic trading on the New York Mercantile Exchange, crude oil for October delivery fell to $63.33 a barrel, far from the $70.85 all time high hit on August 31.  As a result, Canadian bears entered the foray pushing loonie interest lower while increasing the potentially positive impacts for the Japanese economy.  Additionally, given the fact that Canadian dollar denominations have become the "crude currency", any pullback in the spot commodity looks to see a corresponding take back in the commodity bloc currency.

Japanese Optimism:  Notably on the day, in light of Japanese industrial production disappointing to the downside, increased interest was witnessed in the blue chip equity benchmark.  Approaching the 13,000 psychological level global foreign interest looks to have peaked once again.  The increased interest looks to be spurred by optimistic future expectations of the world's second largest economy in light of a 1.2 percent dip in output for the month.

Technically Speaking:  Currently testing the 38.2 percent fib level at 93.54 of the intraday move, CADJPY broke easily through the 10 SMA support and looks to be stalling with plenty of downside to be tested.  However, multiple barriers look to be forming as the 20 SMA moves higher offering the first level at 93.46 with a subsequent floor at the 50 fib at 93.40.  Additionally, a death cross in the Stochastic confirms further selling notions.

EUR/CAD

European Political Pressures:  Political pressures continued to disseminate throughout the market as it is becoming increasingly probable that the leader of the Christian Democratic Party Angela Merkel may have to share power with the incumbent Prime Minister Gerhard Schroeder.  Polls now reflect that the overwhelming favoritism that was earlier shown to Merkel has now narrowed making it more than likely the candidate, if elected, would have to soften her current platform to cut taxes and ease stringent labor laws.   Similar to the situation in Japan, a Merkel victory would bring much anticipated financial reform and boost sentiment in Germany, Europe's largest economy.

Technically Speaking:  Already forming a bottom on the move lower, a reversal swing looks probable with the current price action testing the 10 SMA at 1.4489/90.  With a more than likely break, a test at 1.4503 would be imminent as the move looks to be capped by the confluence at 1.4527 (38.2 percent fib from the intraday move and the 20 SMA).  Downside moves look to test current support at the intraday low of 1.4457.

USD/CAD

Economic Figures Point To Growth: Canadian dollar interest resumed on the session after yesterday's mild selloff with funds joining in on the bid to the downside.  Today's merchandise trade surplus figure, better than expected, rose on higher natural gas and crude oil exports as the trade surplus with the U.S. rose to C$8.83 billion.  As a result, with the improvement on the trade balance, coupled with recent employment strength, speculation is climbing of a probable rate increase come October's meeting of central bank policy officials.  Comparatively, with inflation rather tame, traders are now pricing in the more than likely scenario that Fed policy officials will restrain from hiking the short term rate later this month as members look to further assess the damage in the wake of Hurricane Katrina.

Technically Speaking:  Near term upside potential exists as the price action looks to break through the 10 SMA resistance without a thought.  Additionally, Stochastic rising above confirms the notion after a golden cross, leading one to surmise the first resistance ceiling at the 38.2 percent fib level from the intraday move at 1.1823.  A subsequent break above would see a definitive test of the 20 SMA.

Rumorville: Bids still currently reside at 1.1780, 1.1750 and the 1.1715/20 region with stops hovering the 1.1690 figure.  Comparatively, offers exist at 1.1850 and 1.1880 with stops above at the 1.1900 figure.

Richard Lee is a Currency Strategist at FXCM.