AUDCAD Sell-off Exhausts On Channel Support

Technical Sentiment: Bearish

Key Takeaways

• AUD/CAD reached a major support cluster as volatility died down;
• Canadian Core CPI due on Friday – bullish expectations at 0.2%;
• Wholesale Sales, also bullish, expected to rise to 0.6% vs. 0.4% in August;
• 0.9815/30 is the critical handle right now.

Exhaustion signs are starting to creep in AUD/CAD’s downtrend as traders reach a major yearly technical support. Reactions in this area might determine the outlook for weeks and months to come.

Technical Analysis

Strong flows out of the Australian Dollar coupled with a bullish Canadian Dollar bias triggered a steep decline for AUD/CAD in the last two weeks. Today’s soft touch of 0.9815/30, where a pivot line from January-February 2014 met a 1-year channel support trendline, is showing signs of restraint from sellers to dig even deeper after such a volatile tumble. With Canadian Core CPI and Wholesale Sales just around the corner, both with somewhat bullish expectations, it is possible this news has already been priced in and sellers are taking profit ahead of time.

AUD/CAD is trading around 0.9842 half-way into the 9/18 U.S. trading session, apparently bouncing off the support cluster. Stochastic declined in extreme oversold territory as of late, signaling a potential temporary bottom might form in this area. A daily close above 0.9830, followed by a bullish continuation above 0.9875 on Friday 19^th September, could bring buyers back for a re-test of 0.9936, up to 1.0015 at most (where rallies will be certainly capped by the all important 200-Day Moving Average).

On the other hand, if this sell-off continues post Core CPI and Wholesale Sales, AUD/CAD will begin to target a Fibonacci cluster at 0.9760, with longer term bearish potential extending as low as 0.9600/17 in the coming weeks.

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