GBP/CAD Price Forecast: Returns to trendline after break – at pivotal point

GBP/CAD returns to the underside of a trendline it has broken below.
The pair is consolidating after falling within a rising channel.

Joaquin Monfort FXStreet

GBP/CAD is pulling back after unfolding a partial down-leg within a broader rising channel. It is probably in a short-term downtrend, which, given the principle that “the trend is your friend,” marginally favors more downside.

The pair broke below an important trendline (“Trendline A” on the chart) on October 3. It then bottomed out and has since recovered back up to the underside of the trendline.

GBP/CAD 4-hour Chart

GBP/CAD is at a critical turning point: it could either break back above the trendline, thereby reversing the trend, or roll over and continue lower.

A break below the base of the consolidation (dashed line on chart) would indicate a continuation down-leg. Such a move would be expected to reach an initial downside target at 1.7620 (Fibonacci 61.8% of the height of the range extrapolated lower), followed by about 1.7605 (September 4 low).

A decisive breakback above the trendline, on the other hand, would suggest a reversal of the trend. This is possible given the medium and longer-term trends are bullish and the pair is in a rising channel. Further, the Moving Average Convergence Divergence (MACD) has crossed above its signal line and is rising steeply, indicating strong upside momentum accompanies the current move.

In order to be decisive such a break would have to be accompanied by a long green candlestick that pierced well clear of the trendline and closed near its high, or three green candlesticks in a row that broke clearly above the trendline.

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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