Technical Sentiment: Bearish
Key Takeaways
• AUD CPI rose 0.6% in March, below the forecasted 0.8%;
• CAD Retail Sales could seal the bearish reversal;
• AUD/CAD shed over 100 pips following the announcement;
• More losses are expected in the coming days.
In the last two weeks, AUD/CAD has been trading above 1.0254, constantly testing this year’s high at 1.0348 and the top resistance of a long term channel dating from July 2013. With a smaller than expected rise in CPI, Australian inflation is in check and banks should keep interest rates low for the foreseeable future. As long as Canadian Core Retail sales will not disappoint, today could mark the start of a deep correction for AUD/CAD towards 1.1000 and then parity.
Technical Analysis
While AUD/CAD has been flirting with the resistance of the bullish channel for over a month now, the last two weeks has seen the pair stuck in a tight trading range. With multiple range-highs around the resistance at 1.0348, today’s drop is a strong bearish signal. If Canadian Core Retail Sales will not disappoint and price remains below 1.0254 by the end of the day, the Daily timeframe will show a large Bearish Engulfing Bar pointing to more losses in the coming days.
Having broken the 1.0254 support – the most recent higher low in the uptrend – AUD/CAD has opened the way towards this year’s bullish trendline and the 200 Simple Moving Average on the 4H chart, both located at 1.0190. Immediately below lies the second support, priced at 1.0150. If that fails to hold, the pair could target parity, as well as the support trendline of the long term bullish channel in the months to come.
If price fails to remain below 1.0254 or if a bullish bounce occurs when price touches this year’s trendline at 1.0190, AUD/CAD will continue to adopt a choppy-range personality between 1.0190 and 1.0348.
Resistance levels: 1.0254; 1.0348; 1.1032; 1.1078.
Support levels: 1.0190; 1.0150; 1.1000; 1.0000.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
