GBPCAD through us for a loop recently. On July 28th I mentioned the consolidation pattern that had emerged amid a massive head and shoulders reversal on the weekly chart.
The consolidation I’m referring to was a rising wedge, which typically signals a continuation of the prevailing trend.
Shortly after that commentary, the pair gave us what we were looking for which was a close below wedge support on a 4-hour basis.
However, a volatile Canadian dollar on August 2nd spoiled the retest as new resistance. Instead of respecting the level, GBPCAD blew past it by more than 100 pips.
Luckily a valid entry was never signaled due to a lack of bearish price action during the retest, so we didn’t get caught on the wrong side of the market.
This bullish strength was short-lived, and the pair soon found itself back below former wedge support at 1.7440. Under normal circumstances, I would have taken a short entry based on the weakness signaled by the false break.
However, the pending BoE rate decision kept me on the sidelines.
But with the announcement now behind us, we can begin watching for selling opportunities for a potential move toward the multi-year lows at 1.6700.
I continue to favor selling GBPCAD due to the head and shoulders pattern (see referenced link above) as well as the bearish momentum which has been in place since January. Both signal that sellers are likely to prevail, at least for the short to medium-term.
As for what might trigger a favorable setup, the pair is in the process of testing an area of value between 1.7010 and 1.7043. The latter is last week’s low while the former is the 61.8% Fibonacci retracement from the July low at 1.6691 to the current August high at 1.7545. A close below this area would expose the July lows at 1.6700.
The remainder of the week looks relatively light regarding event risk for both the GBP and the CAD.
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