AUD/CAD MACD Divergence Cues Reversal
The AUD/CAD continues to be a unique currency as it compares two commodity currencies. The Aussie Dollar has traditionally tied to gold while the Canadian Dollar is directly associated with oil prices. While both commodities have been on a boom, it has been the Aussie that has emerged the stronger currency. Now as the pair created a new high on October 28th at 1.0663 traditional divergence has begun to appear.
Traditional divergence can be an early warning signal of a turn in a currency pair and an end to long standing trends. Divergence itself is defined as a separation, and that is what we are looking to find on our graph. Below, you will find that the AUD/CAD has been printing higher highs for 12 months. However, during the same period the MACD indicator has been creating lower lows. This separation of price from the indicator is exactly what we are looking for, to begin looking for breaks in our trend.
Taking Price in to a 1Hour chart we can see a triangle pattern forming on the AUD/CAD pair. Price has formed resistance by connecting the 1.0663 high from October 28th with the November 2nd high at 1.0582. Support is found by connecting the October 21st low at 1.0375 and the November 1st low at 1.0441. After finding these levels, triangle traders will then have a choice of trading a bounce or a break of the support line mentioned above.
My preference is to set entry orders on a break of support, below our previous low near 1.0415. Stops should be placed 60 points away at 1.0475. Limits should look to first target at 1.0295 for a clear 1:2 Risk/Reward setting. Secondary targets can be placed at 10175.
Alternative scenarios include price breaking through support for another attempt at higher highs.
---Written by Walker England, Trading Instructor
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