Two pairs that I rarely talk about are showing signs of strength just below key technical levels. Both GBPCAD and AUDCAD have been carving out descending channels for several months now. In fact, in the case of AUDCAD the pattern has been several years in the making.
Let’s start with GBPCAD and work our way up to the larger pattern.
GBPCAD has enjoyed quite the rally over the last two and a half years. Since the 2013 low, the pair has gained a massive 5,000 pips. There were, of course, a few periods of consolidation in between, but nonetheless this rally has been impressive to say the least.
However, since the August high, the pair has been consolidating into what now appears to be a descending channel. And given the large bullish engulfing candle that formed during yesterday’s session, it may not be long before the pair decides to break free from this range.
If we treat this as a continuation pattern, a break of resistance could trigger a move as high as the 2.2500 area. While a 2,300 pip move may sound a bit lofty, don’t be too quick to dismiss the possibility of such a large move.
A look back at the previous range that formed between 2014 and early 2015 shows a 3,440 pip measured objective that played out perfectly. This isn’t to say that the current structure will perform the same, but it does prove that this pair has the ability to sustain large rallies.
Of course only a daily close above the current range would be reason to consider a buying opportunity. Such a break would expose the current 2015 high at 2.0970. Until that time, I will remain on the sidelines.
As previously mentioned, the descending channel on AUDCAD has been a work in progress for the last several years. The resistance level that extends off of the 2013 high is well-worn as it has now been tested on five separate occasions.
Like the GBPCAD price structure above, the trade idea will materialize on a close above channel resistance. However, I would prefer to see a convincing weekly close for AUDCAD rather than the daily close required for GBPCAD.
The reason for this is twofold. The highs through mid-2014 make it a bit more difficult to ascertain the exact level of interest. I also know that AUDCAD can be a volatile pair to trade as it often retraces its steps before continuing a given trend.
For these reasons, a favorable entry should still be feasible with such a high time frame and we will have the added benefit of a weekly close which will add a greater degree of confidence to the trade idea.
Of course all of this (for both GBPCAD and AUDCAD) could vanish in an instant if the bulls are unable to push these markets higher. That said, with Canada’s trade balance and employment figures schedule for release tomorrow at 8:30am EST, we may not have to wait long to learn the verdict.