AUDCAD: Bearish Pullback nearing bullish support lines
The daily candle chart below shows the price history of the Australian Dollar (AUD) versus the Canadian Dollar (CAD) over the medium term (since April 2013 to the present). This pair is known as AUDCAD and is currently trading near .9615 (as of publication).
Over the past 11 trading sessions the pair has been following a short term bearish resistance line (point 4 in yellow on chart) after finding resistance near the 38.2% Fibonacci retracement level (point 6 in white) following a bullish breakout from medium term bearish resistance (point 1 in red). The target of the 38.2% level was predicted along with the price of .9750 by mid-September in a previous article on the pair earlier in the month, following the bullish breakout.
AUDCAD is approaching the 23.6% Fibonacci level (point 6) which was just 40 pips lower from todays’ low of .9569, the former of which coincides near the support line of a linear regression indicator (point 8- which automatically self-adjusts over time) which if reached could both provide a bounce and bullish reversal. If the 23.6% level is reached and fails to hold the downtrend, then the pair may dive steeply towards the medium term bearish resistance line (point 1) which would indicate a return to the prior trend noted in the previous article (as prior to the bullish breakout).
Since the pair is trading closer to session highs (of .9620) today, there is also a likelihood of a breakout to the upside above the short term resistance line (point 4) which if happened could provide a bullish continuation line (such as point 5) to develop with a target of the 38.2% Fibonacci level (point 6) again.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .9629 with a Limit to take profit @ .9692 and a stop-loss @.9599 Risk/Reward Summary: Limit risk = +63 pips profit / (-30) Stop-loss risk = Gain to Loss ratio = 2.1
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .9536 with a Limit to take profit @ .9499 and a stop-loss @ .9561 Risk/Reward Summary: Limit risk = +37 pips profit / (-25) Stop-loss risk = Gain to Loss Ratio = 1.48
medium term daily candle chart: