AUD/CAD Sell-off Shows Exhaustion Signs

Technical Sentiment: Bearish

Key Takeaways

• Bearish Engulfing Bar paid off big time for sellers;
• Pivot zone at 1.0115 was tested late in the U.S. session;
• A downtrend will form only if traders manage to crack the pivot zone.

Trends are not built on rumors; hence the Canadian Dollar strength we have witnessed today was very likely a one time show.

 

Technical Analysis

In recent weeks AUD/CAD has been under the influence of a choppy market personality between 1.0115 and 1.0230. On Tuesday, the pair closed with a Bearish Engulfing bar on the daily chart, near 6^th August top, forming a short term double top in the process. From a technical perspective, these signals were enough to put buyers on the edge. When sellers drove AUD/CAD below 1.0185, confirming the Bearish Engulfing pattern, volatility increased and the sell-off accelerated sharply down to the price pivot zone at 1.0115 (50-Day Simple Moving Average and 38.2% Fibonacci retracement level from the low of 0.9936 up to the high at 1.0231).

Since price bounced off the pivot zone, we cannot exclude the possibility of price remaining boxed-in in what is now the 6^th consecutive week between the same old boundaries. That being said, we would prefer to see a continuation to lower levels as soon as possible. A break below 1.0115 will immediately renew selling interest, opening targets down to 1.0050 (61.8% Fibonacci retracement level) and then down to parity, where the 200-Day Simple Moving Average will soon offer support.

We currently advise against buying AUD/CAD ahead of a heavy news day, lacking bullish price action signals, only to trade a potentially limited bounce.

*********
Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets