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Ahead of major economic updates in February, we’ve got a solid technical setup to check out that could lead to a swing or longer-term play on AUD/CAD.

AUD/CAD: Daily

AUD/CAD Daily Forex Chart

AUD/CAD Daily Forex Chart

AUD/CAD hits the top of our FX watchlist this week with a few technical arguments in the works, potentially calling for a bearish reversal ahead.

On the daily chart above, we can see the pair has been in a solid downtrend since last Summer, with clear swing tops and bottoms along the way.

Last week, it looks like a fresh bottom was made and the pair now seems to be reversing back to the upside, now testing the Fibonacci retracement levels and the previously strong (but now broken) support area around the 0.9100 major psychological level.

We’re also seeing an overbought signal from the stochastic indicator, and when you combine all of these patterns, the odds are rising technical sellers may be ready to hop back into the downtrend.

Fundamentally, it’s likely been the divergence in monetary policy moves that’s fueled the downtrend in AUD/CAD as expectations are high the Bank of Canada will hike interest rates in 2022 to combat inflation, while the Reserve Bank of Australia maintains that high inflation rates are transitory and no rate hikes from the RBA seem to be imminent.

Looking at what’s coming ahead, we do have several major catalysts in February that could influence the next directional move for AUD/CAD. Most notably, Canadian CPI data next week should spark action in the Loonie, while the monthly Australian employment date a day after should get the Aussie going.

Overall, if the data continues to point to high inflation in the Canada while Australian jobs data disappoints, then this bearish technical setup may have high odds of drawing in bears in February.

We’ll be on the look out for these scenarios to play out, and if the economic data supports further bear moves, we’ll look to jump in the trend if we see bearish candlestick patterns form in the potential resistance area marked above.

But what do y’all think? Will we see resistance soon and will AUD/CAD return to the downtrend? Or will the falling ‘highs’ pattern eventually break? Please let us know in our comment section below!

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