We have been talking about GBPCAD quite a bit over the past week, namely the descending channel that has been in place since the August 24th high at 2.0970.
This pattern was featured last Thursday and again over the weekend as last week’s price action failed to breach key resistance. However, the pair did manage to hold (and close) above the level during yesterday’s session thanks to a much weaker Canadian dollar.
You may recall the thirty two-month reversal pattern I pointed out on CADJPY last month. With the pair now down 150 pips since that writing and a price structure that is hinting at further weakness for the Canadian dollar, a bullish move from a pair like GBPCAD isn’t all that surprising.
That said, I’m in no hurry to buy GBPCAD, at least not after yesterday’s 120 pip rally. While the pair could continue to rally from here without pulling back, recent price action suggests that a return to former channel resistance may be the more likely scenario.
This pair, along with most others, tend to overlap at least a portion of the previous day’s range before continuing in the prevailing direction. A look back over the years shows this to be true.
With this in mind, a retest of former channel resistance as new support could be in order before the next leg higher unfolds. Such a retest would not only provide a greater degree of confidence that yesterday’s breakout is valid, it would also allow traders a more favorable risk to reward ratio.
My bullish bias will remain intact as long as the pair holds above former channel resistance on a closing basis. Key resistance comes in at 2.0560 as well as the 2015 high at 2.0970.