By: Mike Kulej
The so called “commodity currencies”, the Australian Dollar, the New Zealand Dollar and the Canadian Dollar often move in unison. However, periodically strong trends among them also develop. Such was the case in 2010 when the AUD-CAD cross rallied from 0.8570 to 1.0205.
Since the early November of 2010 when the high was reached, this pair has been moving sideways. It pulled back to 0.9733 before testing the high again. The price came within few pips of that extreme and in the process created a possible double top formation.
The double top often is a major reversal pattern, indicating a high probability of a change in the direction. So far, the AUD-CAD fell to 0.9696, just under the previous low. This confirms the pattern and suggests that the price could move lower.
As it is often the case, the AUD-CAD moved back up to within the consolidation zone. Because of the double top pattern, the market bias is bearish and expectation is for the downtrend to get under way soon. The Stochastic indicator is in the overbought zone, typically a good selling place. A bearish reversal candlestick formation now would provide a good entry point for a sell.