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Trader Despair as Pound-to-Canadian Dollar Rate Switches Direction Yet Again

trader reaction exchange rate declines 2

The Pound-to-Canadian Dollar exchange rate must be causing traders a headache as it has changed direction once again.

The pair is trading in mixed waves as it unfolds into the tapering corner formed by two long-term converging trendlines (A and B below).

It was selling off quite strongly after forming a double top reversal pattern at the September highs until it abruptly stopped at the 50-day MA - formed a bullish two-bar reversal pattern and rotated higher.

The pair has now risen and stopped at a tough resistance level at the 'neckline' of the previous double top pattern.

GBP CAD Oct11

The neckline is at the level of the intervening trough between the two peaks of the 'double top'.

It is a key level as it is required to be breached for the pattern to activate its bearish downward potential.

It now appears to be providing resistance to the exchange rate as it tries to move higher.

Given the exchange rates repetitive changes in direction, we hesitate to offer a forecast but other analysts are more willing to adopt a stance.

Strategist Shaun Osborne at Scotiabank has not turned bullish the pair on balance, saying that he was constructive GBP because of the monthly key reversal in September.

"Recall that the GBP’s medium-to-longer run outlook is constructive from a technical perspective, following the bullish key month reversal that developed in Sep. Monitor for now but we look for opportunities to buy GBP weakness," says Osborne in a noted dated October 11.

A key reversal is when prices make a new low and then rebound and close above the close of the previous bar; the more aggressive the rebound the stronger the reversal signal.

Osborne also notes an inverse head and shoulders forming on GBP/CAD, which is a reversal pattern made up of three troughs the centre one of which is the lowest (the head), and he his bullish above 1.68 (current 1.6522), however, we cannot see this pattern on the chart.

"GBPCAD still looks fairly soft but the GBP is finding support about where we expected (low 1.63 area). This goes a little further in setting up the bullish inverse H&S signal we have noted might be forming for the GBP (bullish above 1.68 at this point," says Osborne.

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