So far, the GBPCAD is holding below a level I’ve discussed several times in recent weeks. The 1.7300 handle previously served as range support between the 2nd and 17th of July.
That all changed one day later on July 18th. The sub 1.7300 close that I wrote about here meant that the level should begin attracting sellers. I even included the GBPCAD in the most recent Sunday forecast.
Despite rising above 1.7300 intraday, buyers have so far failed to close the pair back above the level. In fact, today’s price action has already erased this week’s gains.
Because of the neckline support that extends from the year to date low in January, the GBPCAD will be forced to make a decision very soon.
Here’s a look at the pending head and shoulders pattern that began late last year:
At this point, the pound cross is about 50 pips away from confirming the structure above which could trigger a multi-month decline. If we take the 1,500 pip height of the structure and measure from the 1.7200 area, we get an objective of 1.5700.
It just so happens that the 2016 low, which was also a three and a half year low, comes in at 1.5692. That will vary depending on your broker, but it’s safe to say there’s quite a lot happening in the 1.5700 region.
Now, to be clear, a drop of that magnitude would take months to play out. It may even take years. But even if you don’t use 1.5700 as a target, finding evidence to suggest a 1,500 pip decline means you probably won’t want to be a buyer anytime soon.
In other words, at this time I’m only interested in GBPCAD shorts. That’s been the case since the pair carved the June 22nd bearish pin bar. And if sellers can clear neckline support on a daily closing basis (New York 5 pm EST), it will only strengthen the bearish outlook.
As for key areas to keep an eye on should neckline support fail, the May low at 1.7060 is sure to attract a few bids. A close below that would expose key support at 1.6820 which is also the 61.8% Fibonacci of the September 2017 to March 2018 range.
If buyers manage to close the pair back above 1.7300, it would postpone the move lower and expose the former range ceiling at 1.7440.