AUDCAD Short-Term Forex Reversal Pattern – Oct 22, 2014

AUDCAD Forex Reversal

AUDCAD Forex ReversalA short-term forex reversal might be in the cards for AUDCAD, as the pair created a double top pattern on its 1-hour time frame. Price has found resistance at the .9950 mark and is finding support at the neckline around .9850.

A break below this support zone could confirm the potential downtrend and forex reversal, which might last until the .9700 levels or the previous lows. Take note though that stochastic is moving out of the oversold area, reflecting a return in buying momentum, which could take price back to the recent tops.

Forex Reversal Scenarios

A rally could lead to another test of the .9950 resistance and the formation of a triple top, which would still be a valid forex reversal pattern. Shorting at the top of the range could offer a higher return-on-risk, with a tight stop above 1.0000. On the other hand, a break below .9850 could offer the chance to short around .9800 and aim for .9700, for a smaller reward ratio.

Event risks for this forex reversal trade include the BOC interest rate decision, which might reveal a more dovish outlook from the Canadian central bank. Even though inflation has been stronger than expected in the past couple of months, the BOC might once again dismiss this as a result of temporary factors, particularly the recent decline in the Loonie. Other concerns, which might include the potential euro zone recession and the sharp decline in oil prices, might also be raised.

With that, theres’ a good chance that AUDCAD could still bounce and form another top before continuing on a forex reversal. A strong rally might even lead to an upside break past the .9950 area and a test of parity. Further gains past that area could mean a longer-term uptrend for AUDCAD.

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.