GBP/CAD Price Forecast: Possible reversal of trend could lead to more downside

GBP/CAD may be beginning a bearish phase after touching the top of its channel and reversing lower.
It is showing bearish divergence with momentum.

Joaquin Monfort FXStreet

GBP/CAD might have reversed its short-term uptrend after testing the top of its rising channel, forming a bearish reversal candlestick pattern (orange rectangle on chart below) and then establishing a sequence of lower lows and lower highs.

GBP/CAD 4-hour Chart

Although GBP/CAD has pulled back over recent periods, it has probably reversed trend and a break below 1.7946 (September 25 low) would confirm more downside. Downside targets lie at 1.7754 (September 17 low and 50-day SMA), 1.7694 (September 16 low) and 1.7603 (September 4 low) and 1.7407 (August 8 low). A break below 1.7907 would provide stronger confirmation.

Although GBP/CAD is in an uptrend on all time frames, it is nevertheless oscillating within an ascending channel. It is possible, therefore, that it may be entering one of its counter-trend bear phases.

The Relative Strength Index (RSI) has formed a bearish divergence with price compared to the September 17 low (red dashed line on chart above). Although the price was much lower on September 17 momentum was not. This suggests underlying weakness could push prices down.

A break above the high of the Shooting Star at 1.8245 would confirm a resumption of the uptrend. If so, the next target lies at 1.8278, the 61.8% extrapolation of the prior move higher.

Any further bullishness beyond the confines of the channel is likely to be short-lived, however. Such moves are signs of “exhaustion” and are a precursor to deeper corrections on the horizon.

Author

Joaquin Monfort

FXStreet

Joaquin Monfort is a financial writer and analyst with over 10 years experience writing about financial markets and alt data. He holds a degree in Anthropology from London University and a Diploma in Technical analysis.

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