CAD/JPY short potential this week - Morgan Stanley

According to a note from Morgan Stanley, trade recommendations for a short play on the CAD/JPY pairing is looking strong for the current week based on current fundamentals. MS analysts are targeting the 78.00 technical level, with a stop level of 85.15.

Key quotes

"CAD looks poised to weaken further: 

1. positive trade news has largely become priced in, suggesting limited upside and more significant downside, especially given the break-up of Canadian-US trade negotiations which is a risk-negative factor. 
2. Governor Poloz at Jackson Hole suggested that he was looking through the uptick in headline CPI, and 2Q GDP showed that economic data are continuing to soften, limiting the hawkish risks from the BoC. 
3. Markets have begun to price in the risks associated with highly indebted economies exposed to rising global funding costs like Australia and New Zealand, but so far CAD has remained relatively immune, suggesting further room to fall.

while JPY appreciation should continue: 

1. JPY looks poised to strengthen as continued risks in EM should begin to spill over into broader markets, 
2. Fed policy normalisation continues and market volatility increases. 

Risks to the trade include a more hawkish surprise from the BoC supporting CAD and continued low volatility and outperformance of US assets, keeping JPY from appreciating."