AUD/CAD – Look out for a Bullish Continuation Signal

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AUD/CAD - Look out for a Bullish Continuation Signal

Since the beginning of last week, 7/14, AUD/CAD has been consolidating roughly between 1.0040 and 1.0100. This week, we are likely to see a breakout from converging trendlines, and a bullish scenario is favored.

AUD/CAD 4H Chart 7/22audcad 4h chart 7/22(click to enlarge)

Here are some technical clues from the 4H chart:

1) The consolidation between 1.0040 and 1.0100 follows a bullish breakout from a falling trendline.
2) Price pushed above the 100-, and 50-period SMAs in the 4H chart, but the 200-period SMA has been holding as resistance in the current consolidation range. Thus a break above 1.0100 will be very significant in turning the bearish outlook since at least June (it actually goes back to April as you will see in the daily chart), into a bullish one in July.
3) The RSI has tagged 70, which shows ability to establish bullish momentum. Even though it is in the near-term a sign that it is overbought, the short to medium term implication is bullish. Now that the RSI is no longer above 70, the market should be ready to continue higher. It is important to note that the RSI reading did not fall below 40. After tagging above 70, this shows the pair is maintaining the bullish momentum in the 4H chart.

If there is a break above 1.0100, the immediate challenge will be a falling trendline from April, seen better in the daily chart:

AUD/CAD Daily Chart 7/22
audcad daily chart 7/22(click to enlarge)

Here are the bullish clues in the daily chart.

1) The rally from January’s low 0.9411 to 1.0350 in April simply looks like one with trending structure, while the dip from 1.0350 to 0.9937 has a corrective structure, namely, ABC correction.
2) The RSI shows that the bullish momentum from Q1 2014 was lost. However, it does show a bullish divergence.
3) Price did hold up above the 200-day SMA, which retains the bullish bias.
4) If price pushes above 1.0100, the next key resistance seems to be around 1.0150, which is a falling channel resistance and the 100-day SMA.
5) A break above 1.0150, the falling channel, and clearing above the 100-day SMA would be a major bullish continuation signal, that will expose the 1.0242 and 1.0350 resistance pivots.

Failure to push above 1.0100, or 1.0150 would keep the bearish correction in play. In this scenario, the next key support below 0.9937 will be the 50% retracement at 09880.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.