Technical Sentiment: Bearish
- Housing Starts in Canada show small increase to 198K vs. forecast 185k;
- Pound maintains a bullish bias as traders expect the Unemployment Rate to drop to 6.7%;
- GBP/CAD could consolidate at current levels or initiate a bearish continuation.
GBP/CAD has now corrected 61.8% on May’s downtrend, reaching a point where traders could easily invalidate the recent Lower Highs – Lower Lows bearish wave configuration. Seeing how the market is currently respecting the resistance area, the pair should now gain some traction towards the nearest support levels.
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As the European session is drawing to an end GBP/CAD is trading around 1.8330, attempting to close below the boundaries set last Friday. So far, the pair bounced from 1.8400 – 61.8% Fibonacci Retracement from the top at 1.8586 to the low point of 1.8098 – as well as the 200 Simple Moving Average (1.8367) on the 4H time frame. Additionally, on the Daily time frame the 1.8361-69 was a confluence between the 50-Day Moving Average and the 100-Day Moving Average.
As long as Friday’s high of 1.8411 remains intact, GBP/CAD presents a bearish trend configuration of Lower Highs and Lower Lows. The current resistance bounce is a good indication of sellers returning for the time being, with an increasing possibility to test the major support levels in the coming days.
The first support is clustered around 1.8280, formed around an old pivot zone, currently backed by the 50 and 100 Simple Moving Averages on the 4H time frame. 1.8171 is the secondary support, confirmed in April and May. A breach below 1.8171 will not only turn all eyes toward 1.8098, it could also lead to the formation of a Lower Low (1.8034 and 1.7957 are good support candidates for it).
The bearish scenario will be invalidated only if price rallies above 1.8400, in which case the pair will ultimately target 1.8586 and 2014’s Highs at 1.8648. This scenario will remain on-hold while there aren’t any price action confirmations.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets