Aside from the erratic price action that ensued from last month’s Brexit, GBPCAD has been carving out some excellent levels and patterns over the last two months.
For those who were around last month, you may remember the June 3rd break below trend line support. That particular setup provided us with a gain of 740 pips.
Then there was the post-Brexit selloff that cracked the seventeen-month head and shoulders pattern. Although the price action following the event was far too volatile to trade, the pair did respect the broken neckline at 1.8130 as new resistance on a 4-hour closing basis.
Here’s that weekly head and shoulders pattern that is still very much in play.
If the structure above continues to unravel as a head and shoulders, the measured objective at 1.5300 is a sizable 2,000 pips from current levels.
Also, the recent bounce from the 1.6700 handle was a test of the halfway mark between the neckline and the measured objective at 1.5300.
So once again, GBPCAD is playing nice.
Now that we know there’s still plenty of room to the downside should the bearish scenario continue to unfold, we need a near-term structure to time our entry.
The 4-hour wedge you see below could very well be the consolidation pattern that leads to a continuation of this downtrend. However, nothing is confirmed until sellers manage a close below support.
My one reservation about this idea is how far extended the pair is on the weekly time frame. You can see this for yourself in the chart above. Notice how the moving averages are lagging behind current prices by several hundred pips.
What this means is that we could see further consolidation before the next leg lower materializes. But regardless of when and where buyers finally capitulate, my bearish bias will remain intact while the pair trades below the 1.8130 handle on a daily closing basis.
As a side note, yesterday I mentioned the EURGBP wedge shortly before the FOMC statement. That formation gave way to the upside in early session trade, and considering EURGBP and GBPCAD currently share an inverse correlation of more than 90%, it could be a precursor to a GBPCAD break of support.
A move lower would encounter support at the July 14th low of 1.7010 followed by the post-Brexit lows near 1.6700. A daily close below that would set the stage for a completion of the reversal pattern that began early last year.
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