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AUD/CAD Facing Critical Resistance at 0.8957

Last updated 5/14/2009 7:18 PM EST (GMT -5) 0 Comments - Add your comment

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Bradley W. Gareiss

Technical Analyst, GFT

The AUD/CAD has been trending up for the majority of 2009.  However, the pair seems to have stalled.  There is a bearish butterfly forming on the 2hr Chart that would provide an entry and exits with a favorable risk:reward ratio as well.  Notice that the pattern would complete just above the 127.2% Fibonacci extension of YZ on the Daily Chart.  This would be the third time that the pair will have tested the 127.2% of YZ.  Therefore, there is a high probability we will see some resistance assuming the pair continues to rise to our entry.  However, it also means that a broken pattern could lead to a substantial rally, so solid risk management is imperative.

We are looking to sell the AUD/CAD at 0.8957 (Point D).  Point D is located at the convergence of the following points:

Usually we try to trade with the trend, but this is a relatively short term trade that occurs at above average convergence of resistance levels.  We will now jump straight into possible ways the trade could be invalidated.  First, we need to watch how quickly CD completes.  We are looking for the CD leg to rise slowly and enter the trade near our hypothetical entry on the 2hr Chart.  If there are long bars near the completion of the CD leg, we will not take the trade.  Currently there are some long bars, so we are looking for this trade to slow down as it enters.  Be careful if this one rises quickly.  If the pair comes within 10 pips of reaching our entry, does not enter, and reaches T1 before entering, the trade is invalid.  The trade is also invalid if the pair falls below 0.8835 before hitting our entry.

To recap, we will look to sell the AUD/CAD at 0.8957 with our stop placed at 0.8994.  Our initial profit targets are 0.8906 (38.2% of CD) and 0.8862 (61.8% of CD).

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  • Daily Chart - Entry would be at triple top at 127.2% of YZ.
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  • 2hr Chart - Bearish butterfly; sell @ 0.8957.

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