Image © Bank of Canada
- More downside in store for GBP/CAD
- Break below 1.6600 support a key turning point
- Oscillators confirming persistence of bear trend
The GBP/CAD exchange rate, which is currently trading at around 1.6442, could be set to fall all the way down to 1.6100, according to analysts at the investment banking arm of Canadian lender, Scotiabank.
The pair has been in a downtrend since the beginning of May and given the old adage that “the trend is your friend” that trend is expected to continue.
Recently the exchange rate fell below a “major support” level at 1.6600, providing a further impetus for more losses, says Shaun Osborne, an analyst with Scotiabank in Toronto.
Chart indicators called ‘oscillators’, which usually measure momentum, and help technical analysts assess the strength of the trend, are supporting the bearish case, adding further evidence for an extension south.
“The downtrend is strengthening from a technical point of view, with short, medium and long term oscillators aligned and implying an intense bear trend in progress,” says Osborne.
The bear triangle price pattern which formed in June (see chart above) could indicate a potential move down to 1.61.
The triangle could be the middle section of what is known as a ‘measured move’. Measured moved are patterns composed of three sections as illustrated in the diagram below.
The 1st leg and 2nd leg are usually of a similar length enabling forecasting of the end of ‘b’ using the length of ‘a’.
“Recall that the loss of support at the base of the May/Jun bear triangle targets a measured move decline to the upper 1.61 area,” says Osborne.
The bearish outside range on the monthly chart in May, up at the 1.77 highs presupposes a negative longer-term outlook too.
Even deeper declines are possible as Osborne sees no “obvious support for the GBP until the mid-1.57s (early 2017 low). We look for a test of the 1.61 area at least.”
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