- GBP/CAD ripe for a pull-back to 'rest and regroup'
- After correction it is destined to go higher again
- Possibility even of entrance into 1.90s, says Scotiabank
© Viv Idrange, Adobe Stock
Our latest technical studies of GBP/CAD have us forecasing a pull-back for Sterling from potentially overextended highs, but ultimately the outlook remains constructive for Sterling.
The recent rally in the Pound-to-Canadian Dollar rate has exceeded many people's expectations:
The pair has recently broken above several key levels with ease including the 200-week moving average (MA) and the May 2017 highs, and this is evidence of strong bullish sentiment underpinning the uptrend, as normally these levels would have contained the exchange rate for longer, or even led to a reversal in the short-term trend.
This augurs well for the future.
The extreme bullishness of the pair is also highlighted by trading instructors Trade With Precision (TWP).
They note how since breaking above 1.79 the pair is now in an uptrend on all the main timeframes: the daily, weekly and monthly, and this adds weight of evidence of a broadly bullish outlook.
"GBP/CAD is in an uptrend on the daily and the weekly timeframes with moving averages fanning and in the correct order, as well as good convergence on the momentum indicators," says TWP in this morning's newsletter.
Despite the extreme bullish settings underpinning the pair it may be reading to experience a modest pull-back and consolidation before going even higher. Indeed, after a particularly strong move higher, however, markets often pull-back, and this seems to be happening to GBP/CAD - or at least could happen, according to TWP.
If so it will provide investors with an excellent opportunity to buy again and get back in the uptrend at a relatively cheap level, and TWP advise investors to wait for the correction to fall to a set level at about 1.81 before buying again.
1.81 is at a confluence of lines in the region just above the thick horizontal orange line drawn on the chart below:
This level happens to be where several technical levels converge, and "a pullback to test this area from above could see the market back in the buy zone," say TWP.
The view echoes that of Shaun Osborne, FX Strategist at Canadian lender Scotiabank.
Osborne says the pair looks like it is about to pull-back but that it will eventually resume the broader uptrend and go higher again.
"Negative short-term price signals have delivered a modest setback for the pound today but the cross is really just consolidating recent gains at the moment and we think the underlying trend remains positive," says Osborne.
Osborne adds that he thinks the correction back down will probably reach the late 1.70s and draws a line 'in the sand' at 1.7850, saying that if the exchange rate pulls back and then rises back up above this level afterward it will be a sign it is resuming its uptrend.
"We think GBP/CAD could unwind more of its recent strength without seriously damaging positive, longer run prospects," says Osborne, adding, "We think 1.7850 remains the major level to focus on in the short run, with a monthly close above this point helping to bolster longer run appreciation risks (towards 1.99). Near-term we see support at 1.8170/75."
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