Technical Sentiment: Bearish
- RBA Stevens talked down the Australian Dollar yesterday, triggering a large sell-off;
- Canadian Trade Balance posted just a -0.2B deficit, above the consensus -0.3B;
- AUD/CAD is heading for the 200-Day Moving Average for the first time since February.
Earlier this week AUD/CAD baited traders with a possible recovery starting from 1.0024, only to commence a large sell-off from the 1.0115 area afterwards. Below parity, the pair has potential to drop as low as 0.9700 in the coming weeks.
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The pair is in the process of forming a Lower Low in the bearish trend swing configuration, after breaking 28th May low and stabilizing below parity. AUD/CAD is currently trading around 0.9964, with no signs of whipsawing back up before the end of the week, as traders are looking forward for an extended week-end due to 4th July bank holiday.
Daily Stochastic remains in oversold territory, an early indication that selling might temporarily exhaust as AUD/CAD approaches an important support area. The closest support cluster is located around 0.9927/32, where the 200-Day Simple Moving Average rises to meet the support trendline of the 4-month old bearish channel. A bounce in this area is likely in the short term, good for parity re-test at a minimum. Price action still has to confirm this bounce; consequently buying blind is not the preferred strategy when the pair touches the support level, mainly due to the volatile drop we observed far.
If AUD/CAD offers a firm close below 0.9925, the sell-off could potentially accelerate again, first toward the large price pivot zone at 0.9830 (formed between January and February this year); with a final target located around 0.9700, the trendline support of a 1-year old bullish channel.
Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets