Important fundamental and economic announcements dominated this week. While there were no major announcements other than the priced in interest rate hike by the Feds, we managed to learn a thing or two about the state of BoE and what they think of macroeconomic indicators. For one, we saw headline inflation rising to 3.1% necessitating Mark Carney to write a letter to the M.o.F explaining why interest rates are that high and what steps the central bank would take to tame it. Yesterday, it was clear that the central bank was planning on increasing interest rates in the medium term so as to bring interest rates down to 2% which is the ideal target. The central bank will do this gradually especially if Brexit is smooth. They also unanimously retained interest rates at 0.5% and kept its corporate and government bond purchase kitty at £10B and £450B respectively. Since Carney and members of the MPC forecast deflation in the coming months, the GBP dipped and this was largely expected now that the currency has been on an uptrend for the better part of this year.
The Aussie on the other hand is the strongest among the majors. As a commodity dependent currency, it was buoyed the moment copper and Aluminum prices rose and that is why going forward, we should look to buy the AUD and sell Euro or CAD.
AUDCAD Technical Analysis
We shall base our entry in the weekly chart and aim for 300 at least pips in the next month or so. As the chart shows, there is a stochastic buy signal turning from over sold territory complete with a three bar reversal pattern after last week ended up as a bull pin bar.
Don’t forget to notice those higher highs relative to the lower BB. At the moment, the long upper wick means bear pressure but because we are bullish, any dip is a buy opportunity in the 4HR chart from which we shall initiate our long.
Pasting a Fibonacci retracement between this week’s high-lows and our potential buy zone is ideally between the 38.2% and 61.8% levels at 0.9775 and 0.9725 respectively. This ideal level also include the 20 period MA which can act as support. However, since we have a stochastic sell signal, we shall wait until a buy signal prints or when a bull candlestick prints anywhere within our buy zone as marked in the chart.
We shall therefore trade as follows:
Buy Limit: 0.9725-75
Stop loss: 50 pips from buy zone
Take Profit: >300 pips