GBP/CAD skyrocketed yesterday, breaking above the key resistance (now turned into support) barrier of 1.7800. Subsequently, the rate emerged above 1.7940, and during the European morning Tuesday, it oscillated slightly above that hurdle. The pair is trading above the short-term upside support line taken from the low of the 10th of January, and also above all three of our moving averages, which point north. What’s more, the break above 1.7800 confirmed a forthcoming higher high on both the 4-hour and daily charts. All these suggest that the near-term outlook remains to the upside and that further advances may be in the works.
If the bulls manage to stay in the driver’s seat, then we may see them aiming for the 1.8100 key resistance obstacle. The catalyst for such a move could be a cautious BoC tomorrow. The Bank is expected to keep interest rates unchanged, something we agree with, bearing in mind that data releases since the last meeting were not encouraging enough to warrant another rate hike. On top of that, the very little progress in the seventh round of NAFTA negotiations, combined with US President’s decision to impose tariffs on steel and aluminum, could lead to a more cautious stance by policymakers.
Taking a look at our short-term oscillators, we see that the RSI has topped above its 70 line, while the MACD, although well above both its zero and trigger lines, shows signs that it has started to slow down. These signs suggest that a corrective setback may be in the works before the bulls decide to take charge again.
A dip back below 1.7940 could confirm the case for such a setback and could aim for the next key support territory of 1.7800. That said, given that the rate would still be trading above the aforementioned upside support line, the near-term outlook would still be positive in our view. We would like to see a clear dip below the upside support line and the 1.7765 barrier before we start examining the case for a short-term trend reversal. Such a break could open the way for the 1.7615 support, defined by the low of the 1st of March.
Article written by Charalambos Pissouros, Senior Market Analyst at JFD Brokers