I've been stopped out of all my Aussie shorts on the breakout today. But my setups for AUDUSD and AUDJPY are still intact as the resistances are still safe. Having failed so many times in shorting AUDJPY (first try, second try), I am taking a conservative approach on that particular play. Although those setups are ripe for entries, I'll wait til the test of resistances hold first before entering short again in AUDJPY and AUDUSD. Which begs the question of, why AUDCAD, and why now? First of all, I still have conviction about my Aussie short because of the setups as discussed previously and the fact that gold price is holding the 40 day ema at 1135 at the moment. That 40 day ema has worked well on the uptrend in the past few months. So it should be respected if gold is indeed in a downtrend now as I surmise. So why short AUDCAD instead of the popular AUDUSD? Simply because AUDUSD broke out of a short term range whereas AUDCAD is still holding as seen in the AUDCAD 3-hour chart of Figure 1. This shows AUDCAD is weaker even when gold is making new short term high.
[caption id="" align="aligncenter" width="580" caption="AUD/CAD, 3-hour"][/caption]
For the big picture, see Figure 2 for the weekly chart of AUD/CAD. We see that 0.98-0.99 has always been the turning point for a massive 1000+ pips selloff. We've hit 0.99 back in November and the slide is already in progress.
Secondly, we see from Figure 2 that AUDCAD bounced off the 40 week ema in late December and ran up to 0.95 from 0.92. 0.95 is a decidedly important round number resistance as it was also a peak in April of 2007. You know, the time before the economy started to crack as shown with the topping in the markets.
[caption id="" align="aligncenter" width="580" caption="AUDCAD, weekly"]1[/caption]
Now that I've established that the trend is pointing down. I still need to time my short entry.
Figure 3 shows the daily chart of AUDCAD. In view of the above discussion, we have a good chunk of resistance above 9550 as marked by the purple box in Figure 3. This is the all important safety net for this short entry. As long as AUDCAD stays below 9600, this long term setup remains intact. And don't forget the broken uptrend line.
[caption id="" align="aligncenter" width="580" caption="AUDCAD, daily"]2[/caption]
Lastly, notice the RSI trends in both the 3-hour (Fig. 1) and daily charts (Fig 3.), they are both showing negative divergences. Figure 1 is my timing for this entry, see the current negative RSI divergence marked by the downward trend in RSI versus the toppy price.
In summary, here are my signals for this FTC setup:
- Weekly chart shows downward trend.
- Big resistance above current price on daily.
- Broken uptrend line on daily on retracement from weekly chart.
- Intermarket relation with gold testing 40 day ema at 1135.
- Negative RSI divergence on 3-hour chart.