- AUD/CAD – strong static resistance at 0.9347 and 0.9393
- Downtrend in place since end of May, Canadian GDP data up Wednesday,
- Inverse Head & Shoulders pattern may point to upside breakout
AUD/CAD forecast notes that the pair fell at the end of last week and opened in the red yesterday at the beginning of this week’s trading, but has just shown a strong green candle on the 4-hour chart.
CAD is helped going into the week by strong energy complex prices, although WTI oil is currently off 0.15% at $73.93, but Natural Gas continues to trade at a two-year high, currently priced at $3.553.
On the other hand, the Australian dollar is being held back by Covid setbacks in New South Wales, as new lockdowns are imposed in Sydney and elsewhere, with worries mounting about the spread of infections caused by the more contagious Delta variant.
AUD/CAD forecast: Inverse H&S not confirmed
Last week, AUD/CAD’s failure to pass above static resistance hinted at the development of a potential Inverse Head & Shoulders pattern on the H4 chart.
But as the new week begins, this remains far from being confirmed. At the time of writing the pair is trading at 0.9346.
The Canadian Dollar is still strong even if the Canadian retail sales data landed worse than expected last Wednesday. Market participants are now waiting for the Gross Domestic Product figures which will be released on Wednesday and it could lead to strong movement for this major commodity pair.
The GDP data is forecast to show contraction of -0.9 month on month for April compared to 1.1% previously, which is likely to add to selling pressure for the Loonie. Any reading that shows a worse position than the forecast will naturally pile on the bearish pain.
There is also economic data out on Wednesday that may help to ascertain where input prices are headed, with Industrial Product Price and Raw Material Price Index dues on Wednesday too. The previous readings were 1.6% and 1% respectively. See our live calendar for more details.
On Thursday Commonwealth Bank Manufacturing PMI data is due for the Australian economy, plus trade balance data and the RBA Commodity Index reading and this may have some bearing on the AUDCAD forecast.
AUDCAD forecast: technical analysis
As you can see on the H4 chart below, the pair has passed above a downtrend line and now it has developed a potential reversal pattern. The inverse H&S pattern was far from being confirmed on Friday.
Technically, AUD/CAD could activate the Head & Shoulders pattern after jumping and stabilizing above the 0.9393 level.
Making a valid breakout above the neckline, through the immediate downtrend line and registering a new higher high could really validate a potential bullish reversal.
In our AUDCAD forecast we think the pair will move sideways in the coming days, until Wednesday when the GDP data provides a fresh trading opportunity. We see the H&S pattern being invalidated if the price drops below 0.9283 low.
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