InstaForex

October 27, 2021

Major Resistance Ahead on AUD/CAD?

 We’ve got top tier catalysts this week from both Australia and Canada, making their respective currencies ones watch this week for forex traders.


Will we see volatility pick up and take AUD/CAD higher to test a major resistance area in the longer-term downtrend?


Major Resistance Ahead on AUD/CAD?

Volatility may pick up quickly this week for both the Aussie and the Loonie, as we’ll see top tier economic events from both Australia and Canada. From the Land Down Under, we’ll get the latest read on consumer inflation (a big input for central bank interest rate speculation) and from the Great White North, we’ll get the latest monetary policy statement from the Bank of Canada (BOC).



Expectations are for the Australian CPI number to once again show an accelerated rate of price growth (0.8% headline CPI forecast, 0.5% trimmed mean CPI forecast), and from the Bank of Canada, it’s likely they will hold interest rates at 0.25% but slow down asset purchases. So, the current odds are that we could see both currencies find buyers in the short-term, making the bias for the week on AUD/CAD tough to determine.


But with economic data roaring in Canada and oil (Canada’s top export) roaring higher, we think longer-term that the Canadian dollar could outperform the Aussie, and we’ll use any pop in volatility and prices in AUD/CAD to potential position ourselves in that longer-term trend lower going back to the beginning of 2021.


On the daily chart above, we can see a very strong area of interest around the 0.9370 handle, which has been a strong resistance area over the past five months. If this week’s events sends the market to that area and it is able to hold/draw in sellers, we may consider a longer-term short position if the BOC is hawkish in their commentary (i.e., hints at rate hikes soon) and/or Australian CPI comes in below forecast.


Now, it’s possible that a continued move higher could draw in more buyers, especially technical buyers who may be seeing that double bottom formation at the previous swing low area (around the 0.9100 handle). If the market does blow by resistance on strong Aussie CPI and/or less hawkish BOC commentary, then that would form a neckline break of the double bottom that may draw in more technical buyers short-term.



What do you all think? Will AUD/CAD retest  the major resistance area on the chart above? Or will we see a quick return to the downtrend on this week’s economic events?