GBP/CAD surged yesterday, breaking above the psychological barrier of 1.7500 for the first time since May 7th, with the rally pausing today near the high of May 4th. Overall, the pair continues to trade above the upside support line drawn from the low of June 30th, as well as above all three of our moving averages on the 4-hour chart, signs that keep the near-term outlook positive. However, given that the rate has distanced itself from that line, we would stay careful over a possible setback before the next positive leg.
If such a setback stays limited near the 1.7545 zone, the bulls may jump back into the action and push the rate above the 1.7625 zone, initially aiming for the 1.7700 hurdle, which is defined as a resistance by the high of May 1st. If that barrier is not able to stop the advance either, then we may see extensions towards the 1.7800 zone, marked by the high of March 31st.
Looking at our short-term oscillators, we see that the RSI has flattened above its 70 line, while the MACD, although above both its zero and trigger lines, shows signs that it could start topping as well. Both indicators point to upside momentum, but their slowdown comes in line with the view that a small retreat may occur before the next leg up.
Now, in order to start examining the case of a deeper correction to the downside, we would like to see a decisive break back below the 1.7500 zone. Such a move may encourage some bears to take the driver’s seat and push the action towards the 1.7365 line, marked by Wednesday’s inside swing high. Another break, below 1.7365, may extend the slide towards the low of the same day, at around 1.7260.
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