Forecasting currency price movements 2 months out is always challenging - I have decided to apply some techniques to narrow the range of the currency movement and then decide on a direction.

(1) Narrow the range of currency movement
As per the chart below, I have identified the range over the next 2 months to be from 0.9534 - 1.0234 (700 pip range). This is based on the historical analysis of 12 years of Nov and Dec ranges for the AUD/CAD which identified two interesting points:
  • AUD/CAD has had lower volatility (measured in ATR) when trading close to above 1.0000
  • AUD/CAD has always had overlapping ranges during Nov and Dec

Supporting this analysis is the TEMA (140), in pink, and TEMA (40), in purple.
(2) Decide on direction
After analysing the support and resistance ranges on three time frames - daily, weekly and monthly - I am convinced that the pair will test the break of the Gartley butterfly pattern at 1.07 in the longer term.

The daily range from 0.9496 to 0.9734 is the currently resistance zone - if it breaks below this range, it renders this analysis incorrect. Currently, it is trading above 0.9734 which suggests a bullish trend.

Further, analysing the up-swing from 0.9321 to 0.9977, we can tell that it was trading in a symmetrical band suggesting a likely 1 to 1 correction. The dark lime green lines suggest the 1 to 1 likely projection to my monthly range target of 1.0621 which is a nice coincidence.

Suggesting a squeeze within the 0.9800 to 1.000 range, we should see a 1.238 extension from there towards a minor target of 1.0190.

(3) Supporting Analysis

I thought I would share some other charts that underpin the first and second point.

a. Historical Ranges in Nov and Dec
The stack bars show the trading range (high to low) for Nov and Dec for the years from 2002 to 2012. As mentioned earlier, you can note that when the AUD/CAD was trading above one, the historical range has been much lower which suggests a breakout with little resistance from traders.





b. Speculators tend to adjust trades according to AUD price movement whilst speculators sell CAD on any recovery
The main points from the chart below is to contrast the red and black line - the red is the price and the black line is the net speculator position.

Kindly observe that as the AUD is sold down, speculators are increasing short positions and when the AUD is rallying, the speculators are increasing their long positions or netting out their short positions.

Conversely, on the CAD, any increase in price is met with increasing short positions from speculators.

Following this trend alone, we will conclude that an increase in AUD is likely to be supported whilst an increase in CAD will face further pressure - i.e. AUD/CAD should "edge" higher against this backdrop.



I would like to end by reiterating by target of 1.0190 for the AUD/CAD pair by Jan 1, 2014.

Thanks for reading and I would love to hear comments or thoughts on the AUD/CAD pair.

Cheers,
deliriou5
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