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Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
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Nearly two weeks ago on July 2nd, I pointed out a massive 1,500 pip reversal pattern on the GBPCAD. The only problem is, the structure was far from confirmed.
And while the pound cross is still hovering nearly 200 pips above the suspected neckline, the pending head and shoulders pattern is one step closer to completion.
Why do I say that, especially when the pair has gone nowhere fast?
The fact that buyers have struggled to gain traction following the late June selloff is promising for GBPCAD bears. That selloff, by the way, started with the June 22nd bearish pin bar which we discussed here.
Furthermore, the longer sellers can keep the pair suppressed, the more likely it is that we’ll see an eventual break below the 1.7160 area.
I’m a firm believer in the notion that the swing highs and lows tell us all we need to know. And right now, those highs and lows are in favor of sellers.
That said, keep in mind that this is a Canadian dollar cross. That means you should expect bouts of volatility and more sideways price action in the interim. Plus, yesterday’s session closed just below 1.7440 resistance, which may suggest an upcoming move above the level.
As I mentioned to member’s earlier, when CAD crosses decide to move they can really move, but the question is always when?
For the GBPCAD, the answer lies below neckline support near 1.7160. There are a few interim support levels as shown in the chart below, but these are secondary to the pending head and shoulders pattern.
A daily close (New York 5 pm EST) below 1.7300 would expose the neckline near 1.7160. A close below that would confirm the head and shoulders and open the door to much lower levels including the objective at 1.5700, which is also the 2016 low.
Alternatively, a close above 1.7440 would delay an extended move lower. It would also expose the 1.7550 area.
I’m going to remain on the sideline for now. Only a sell signal from 1.7440 or perhaps 1.7550 over the coming sessions would pique my interest.
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