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An Intraday AUD/CAD Descending Channel is Creating Scalping Environment

An Intraday AUD/CAD Descending Channel is Creating Scalping Environment

2011-05-23 20:04:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The AUD/CAD pair, despite being one of the least volatile pairs over the past month – with approximately a 250-pip range – has seen the extremes in this range come rather sharply, suggesting that the pair represents one of the better opportunities to scalp. After reaching its 2011 at the end of April, the pair has seen three tests of its range top and two tests of its range bottom over the past month. Now, with the AUD/CAD pair sitting near critical technical levels as well as its channel’s regression in a slight descending channel over the past month, an opportunity to scalp has emerged for traders collect profits as markets shift towards a stage of risk-aversion.

Key Technical Levels

An_Intraday_AUDCAD_Descending_Channel_is_Creating_Scalping_Environment_body_Picture_10.png, An Intraday AUD/CAD Descending Channel is Creating Scalping Environment

Charts created using Strategy Trader– Prepared by Christopher Vecchio

While a descending channel had been in place from mid-February through the beginning of March, a shift to risk-appetite and a sharp rally by previous metals, which saw COMEX Gold flirt with $1600/oz and COMEX Silver flirt with $50/oz, caused the AUD/CAD pair to break through its range top and test the 1.0450 level. However, such a test provided fruitless, and the pair has swung lower upon reaching its yearly high. The general appreciation remains the broader trend, however, as the pair has been in an long-term ascending channel since February 2009, before the start of the major bull rally in equity markets.

An_Intraday_AUDCAD_Descending_Channel_is_Creating_Scalping_Environment_body_Picture_4.png, An Intraday AUD/CAD Descending Channel is Creating Scalping Environment

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Looking at the 60-minute charts, it appears that the general trend of depreciation started at the 1.0443 level at the end of April; consequently, this marked the highest exchange rate the pair traded at in 2011 thus far. The pair has traded mostly sideways since the beginning of May, but the overall trend remains slightly to the downside, with the 1.0377 level representing the range top and 1.0165 representing the range bottom. Considering the historical tendency for the AUD/CAD pair swing trade in its slight descending channel, and with momentum to the downside, it appears that the pair is in its next leg down towards the range bottom. The AUD/CAD pair’s bearish momentum is continuing to strength, currently at -9 on the 120-minute chart, though it has tailed off on the 60-minute chart, now at -3. Accordingly, while in the very near-term there could be some covering of positions as profits come off the table, the overall trend remains lower for the AUD/CAD pair.

Key Support/Resistance Levels to Watch

Indicator

Timeframe

Level

Fibonnaci – 0.00%

Daily

1.0443

Fibonnaci – 23.6%

Daily

1.0248

Fibonnaci – 38.2%

Daily

1.0125

5-SMA

Daily

1.0321

20-SMA

Daily

1.0319

50-SMA

Daily

1.0137

100-SMA

Daily

1.0022

200-SMA

Daily

0.9947

Bollinger Bands – Upper

120-min

1.0394

Bollinger Bands – Lower

120-min

1.0259

Quantitative Metrics

Heading into the next few hours, with an ATR of 93 on the daily charts, it appears that there is room to scalp as the pair trades below both its 5-SMA, at 1.0321, and its 20-SMA, at 1.0319, and above its 23.6 Fibo, at 1.0248, on the daily chart, on the March 17 to April 29 move. The pair’s 50-SMA remains above its 200-SMA, an indicator of a long-term bullish bias, and the differential has indeed begun to widen over the past few weeks. Nonetheless, the recent consolidation in May has stalled the pair’s appreciation. Should the markets truly be entering an extended period of risk-aversion, and the pair is able to close below its 20-SMA, it is likely that the AUD/CAD pair will fall even further towards its 50-SMA once more. On the 120-minute chart, the RSI is still declining, signaling further losses in the 20-pip range could be on the horizon before the AUD/CAD pair rebounds.

An_Intraday_AUDCAD_Descending_Channel_is_Creating_Scalping_Environment_body_Picture_1.png, An Intraday AUD/CAD Descending Channel is Creating Scalping Environment

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Volatility / Activity Indicators

EURUSD

GBPUSD

USDJPY

USDCHF

USDCAD

AUDUSD

NZDUSD

GBPJPY

EURJPY

ATR (14)

0.0179

0.0138

0.7289

0.0103

0.0096

0.0140

0.0104

1.5724

1.7139

ATR %

1.27%

0.86%

0.89%

1.17%

0.98%

1.33%

1.32%

1.19%

1.49%

5d - 20d SMA

0.0249

0.0187

-0.4788

-0.0038

-0.0105

0.0110

0.0043

0.7504

1.3459

Bollinger Band

0.1112

0.0698

2.1905

0.0336

0.0384

0.0531

0.0332

6.8029

9.6328

Implied Vol (1wk)

12.6850

9.0050

9.8350

11.1250

9.1000

12.7050

12.7300

13.7800

14.4050

Possible Fundamental Affect

With no significant data due for either country over the next 24-hours, much attention will be paid to the market’s tolerance for risk. While both currencies are viewed as risky assets, with both being considered commodity currencies, when the market shifts to a risk-aversion stage, in lieu of fundamental data suggesting otherwise, the general trend is in favor of AUD/CAD pair weakness, as has happened over the past few days. Accordingly, from a fundamental basis, without any data on the docket, the broader trend is for AUD/CAD pair weakness so long as the markets remain risk-averse.

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Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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