Backdrop: AUD/CAD has been bearish for most of 2014, from a high of 1.0350 made in April to a low of about 0.94 in late December. Since the turn of the year, the pair has rallied sharply to about 1.0050 before stalling again.
The daily chart above shows the bullish attempt in January and the pull back since the high around 1.0050. A few notes:
1) Compare the structure of the January rally with the February decline. The rally appears to reflect more of a trending, motive wave, while the choppier decline suggests a more corrective mode.
2) The RSI has tagged above 70 and held above 40, which suggests that the bullish momentum in January is still in play.
3) Price action reacted with strong support around 0.96, which is in a previous support resistance pivot area. Price bounced off of 0.96 twice, which shows a double bottom in the 4H chart.
4) The fact that price is able to hold above the 50-day SMA could be an early sign that the bulls are indeed taking over in this market.
Despite strong support, we still don’t know if the bulls will be able to extend higher and revive the bullish trend development seen in the previous month or so. Let’s take a look at the 4H chart:
Testing Key Resistance: The 4H chart shows AUD/CAD pushing against a falling trendline and threatening to push above the 200-, 100-, and 50-period SMAs. Note that the RSI has been holding below 60, which shows maintenance of the bearish momentum.
Bullish Outlook: So, a break above 0.9780 would likely push above the trendline, and push the RSI above 60. A break above 0.98 would complete the double bottom. This scenario would open up the highs around 1.0050, with risk of extending higher to about 1.0100 to challenge a falling trendline from April 2014, seen in the weekly chart. We can see that another falling trendline from the 2013 high of 1.0715, along with the 200-week SMA also reinforces the area around 1.0100.
For now, because there is no strong prevailing uptrend, we should not expect strong resistance around 1.0100 if price does approach this area.
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