Sentiment indicators and the AUDCAD position within its wave pattern suggest that the pair is turning higher from what will prove to be multi-year lows. Reward/risk is better than 4:1 at current price.
Current Price: .8636
Key Levels:
The weekly chart above is of the AUDUSD along, net speculative positioning (bottom in black) and net speculative positioning measured as a percentile over the last 52 weeks (blue). A percentile reading of 0 (or close to it) indicates that sentiment is extremely bearish, indicating that a bottom is close at hand. The bottoms are of varying degrees but bottoms nonetheless. The percentile indicator is near 0 now, indicating potential for a bottom in the Australian Dollar.
Net speculative positioning along with the percentile indicator is plotted for the Canadian Dollar above. A recent reading of 100 indicated a bullish extreme in the CAD and the USDCAD has started to turn up. Given that the CAD is coming off of a bullish extreme and set to weaken and that the AUD is nearing a bearish extreme and set to strengthen, the logical trade is long AUDCAD.
Sentiment indicators are great but the greatest indicator of all is price pattern. The decline from 1.0546-.8119 (February 2004-June 2006) is a large 3 wave decline (A-B-C), indicating that the trend of the next larger degree is up. A 5 wave rally occurred off of the .8119 low and was succeeded by a 3 wave correction (a-b-c). 5 waves up and 3 waves down complete one 8 wave cycle and wave 1 and 2 (red) of the next larger degree. Large wave 3 is the next move of consequence. Wave 3 often carries at least 161.8% of wave 1. The math provides a bullish target of 1.0531. .8119 must remain intact and preferably .8271 remains intact.