AUDCAD: Looking For Support as 23.6% Fibonacci Level Breached on Way Down
The first daily candle chart below shows the price history of the Australian Dollar (AUD) versus the Canadian Dollar (CAD) over the medium term. This pair is known as AUDCAD and is currently trading near .9495 (as of publication) following a second day of swiftly bearish price activity.
Comparing to the last time the pair was covered in the Ideas You Can Trade series, in early November, the momemtum has since changed into more of a consolidation phase driven by changes in the AUDUSD and USDCAD pair respectively (a chart of each is also provide further below and explanation). As the AUDCAD pair has currently breached below the 23.6% Fibonacci retracement level (point 6 in white) as measured from the high and lows of the chart history shown, the current bearish momentum could continue down a very short term line (point 3 in blue) until support is found.
If the Fibonacci line is regained and a reversal is aided off current support levels (point 4) then a very short term bullish trend line (such as point 5 in aqua) could provide a target of the 38.2% Fibonacci level back near .9750.However, the current low of the day (.9487), which is very close the current price, also happens to intersect with a short term bearish channel (point 4 in yellow) which could help bounce prices back up to regain the 23.6% Fibonacci level.
Even if this support line (of point 4) helps curb a drop, the momentum thereafter could continue bearishly (since its a bearish line and points lower), and if a dive continues lower - the 0% Fibonacci level near the low's of July 31,2013 of .9169, could be targeted in coming weeks.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ .9599 with a Limit to take profit @ .9633 and a stop-loss @.9569 Risk/Reward Summary: Limit risk = +34 pips profit / (-30) Stop-loss risk = Gain to Loss ratio = 1.13
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ .9469 with a Limit to take profit @ .9399 and a stop-loss @ .9502 Risk/Reward Summary: Limit risk = +70 pips profit / (-33) Stop-loss risk = Gain to Loss Ratio = 2.12
medium term daily candle chart:
A Note on Crosses: while some cross pairs are calculated differently than others (multiplying, or dividing,etc..) mathematical relationship or ratio exists. The AUDCAD is calculated by multiplying the price of its two major constituent pairs, in this case the above mentioned, in order to derive the AUDCAD rate. For Example, assuming the following rates where valid at a specific moment in time, the AUDCAD would be derived accordingly, AUDUSD 0.8933 (Major Pair) rate, multiplied by rate of USDCAD 1.0639 (Major Pair) = AUDCAD 0.9503 (Derived Cross Pair), or written:
AUDUSD*USDCAD =AUDCAD (0.8933 *1.0639 = 0.9503)
The reasons for this, is the USD becomes removed with its equivalent value replaced in the cross-pairs currencies including being subsequently priced in one of them:
AUDUSD*USDCAD =AUDCAD ( 1AUD in $, * 1 CAD in $, = 1 AUDCAD)
Also Expressed as 1AUD priced in USD, * 1CAD priced in USD , =1 AUDCAD price in CAD) or USD.8933 (= 1 AUD) * CAD 1.0639 (= 1 USD) = AUDCAD (= .9503 CAD).
Daily Candle Chart of the AUDUSD for price history comparison:
Daily Candle Chart of the USDCAD for price history comparison: