Syria airstrikes: growing chances of a relief rally and a Long opportunity on CAD/JPY

Early on Saturday morning, US President Donald Trump announced a coordinated missile and airstrike on Syrian chemical weapons installations alongside the UK and France. He added warnings to Iran and Russia, the Assad regime's allies. Trump also discussed "sustained action," raising fears of an ongoing campaign. Russian President Vladimir Putin said that the attack was an act of aggression and offered Syria sophisticated air defense systems.

Yet later on things calmed down. A heated debate in the UN Security Council led to no resolution and served as a venting venue. Trump then tweeted "Mission Accomplished," the infamous phrase that President George W. Bush used after the initial campaign in Iraq in 2003 and also the British government is not keen on further action. No Russian soldiers were hit. 

The Syrian civil war is not over, and the government in the war-torn country may still possess more gas agents despite the strikes on April 14th. Iran may continue clashing with Israel, Syria's neighbor and the region is not known for its stability in general. Given the bleak history of the civil war, there is a high chance that many more civilians will lose their lives by conventional weapons shortly. 

But for financial markets, the current episode that began with Syria's use of chemical weapons against its citizens on April 7th will probably be seen as over. The Syrian theme was in the news throughout the second week of April and caused some jitters in the markets. Stocks were shaken and oil prices, already buoyed by a favorable supply and demand balance, pushed to the highest levels since 2014.

What is next for financial markets? At the moment, the situation in Syria seems to be contained, and markets may move on to normal topics: economic indicators, interest rate differentials, etc.

In Forex, two currency pairs are of interest. The Japanese Yen attracts safe-haven flows in times of trouble. The perceived end of the current Syrian episode may allow for a relief rally. The USD/JPY could gap higher in the new trading week and extend its gains after reaching the highest levels since late February.

The second currency pair to note is the USD/CAD. Canada's key export is oil, so a fall in prices of the black gold as a result of fewer fears may push it lower. On the other hand, the Canadian Dollar is a "risk" currency that rises with stocks and optimism in general. So, anything related to Syria would be a double-edged sword.

What direction will the C$ pick amid these opposite forces? There is a better chance that the Canadian Dollar will continue its upside swing on the risk-on sentiment. Also, oil prices have good reasons to rise even if the Middle East is completely forgotten: drawdowns in inventories and an ongoing commitment by OPEC and non-OPEC countries to curb production keep petrol prices bid.

When examining both a potential fall in the USD/CAD and a rise in the USD/JPY, the CAD/JPY may rally, reflecting a positive mood. 

CAD/JPY Levels

The CAD/JPY cross has reached a high of 85.85 on April 13th, and this line serves as the first resistance line. If the pair jumps above this level. The 86.80 worked as both support and resistance in mid-February and serves as the next cap. 87.50 is the 200-day Simple Moving Average. 

If the pair turns down, 84.45 capped the pair in mid-April and also worked as support in February. 83.50 served as resistance in mid-March and later in early April as support. 81.65 worked as a swing low in early April and could support the pair.

The RSI points to upside momentum at around 63. A leap to the upside could push it to above 70, overbought territory.