By: Mike Kulej
Recently the Australian Dollar made the all time high in relation to the US Dollar. However, the appreciation in the AUD was much broader, in most of its other crosses. Even another commodity currency, the Canadian Dollar, lost a lot of ground.
The AUD-CAD had a strong rally, from 0.8577 in June to as high as 1.0204 in early November. That uptrend was very steady and tight, without much correcting along the way and staying close to the trendline. During the last few weeks, however, the price behavior has changed, creating a possible top in the process.
When the AUD-CAD pulled back to 0.9902 early this week, it broke the main trendline and dipped under the previous low of 0.9909. There was no daily close under that level and the price returned above the trendline, but this action is consistent with how a Head and Shoulders reversal forms. If the AUD-CAD drops below 0.9900, it would complete the Head and Shoulders pattern and mark a likely long term trend reversal.
Other technical tools support this possibility. Both the MACD and the RSI indicators show multiple divergences, which is typically very bearish. On balance, the daily chart of the AUD-CAD is in the process of building a probable top and closing under 0.9900 would confirm it.
