GBP/CAD Breaks Uptrend Line: Is a Downward Movement Imminent?
The GBP/CAD pair has exhibited considerable strength since April 2024, climbing steadily until it reached key resistance at approximately 1.8070. This resistance area is close to the highest level seen since 2018, when GBP/CAD traded around 1.8400.
Following its engagement with resistance on the daily chart, the price began to show signs of exhaustion. On 12 November, the pair broke below its established uptrend line, indicating a potential reversal or, at the very least, a deeper corrective pullback in the short term.
Support and Resistance Context
Historically, once a support level is breached, it often transforms into resistance. Thus, the area where GBP/CAD broke the uptrend line may now act as a barrier preventing further price increases.
Resistance and Fibonacci Confluence
The breakout point of the ascending trendline now corresponds to the zone between the 38.2% and 50% Fibonacci retracement levels of the recent downward movement. This area, which previously provided support to the price, is positioned to play a vital role as resistance during any corrective phase.
Potential Selling Opportunity
The break below the trendline indicates a potential weakening in bullish momentum. A retracement to the 38.2% to 50% Fibonacci region would constitute a healthy correction, allowing sellers to position themselves at a key technical confluence.
This retracement area aligns with the prior breakout point of the trendline and coincides with a newly established resistance level, significantly increasing the likelihood of price rejection.
Sell Entry: A viable selling opportunity may arise if the price retraces to the 1.7870 to 1.7930 zone and displays signs of rejection, such as the formation of a Pin Bar or Engulfing candlestick pattern on the daily chart.
Target Projections: The initial target could be set at the recent low of 1.7700, with a further extension down to 1.7300, where the price may find new support. Notably, the 1.7300 level represents a crucial historical resistance that could now serve as significant support.
Stop Loss: A protective stop loss should be positioned above the 1.8070 level, the historical resistance, to shield against a potential reversal in the upward trend.
An alternative scenario
While the resistance observed on the daily chart is significant, traders should remain vigilant for a potential breakout above this level, as it could propel the GBP/CAD towards the next resistance target of around 1.8400. Additionally, the upcoming release of the Consumer Price Index (CPI) for the British Pound on Wednesday is a crucial factor to consider, as it may set the tone for future monetary policies in the UK.
If inflation comes in higher than anticipated, it could lead to a more restrictive monetary policy in the medium term. Should this occur, GBP/CAD might break through the resistance level and continue its upward trajectory on the daily chart.
In this scenario, a buying opportunity could materialise if the CPI data exceeds expectations and the price successfully breaks above the resistance level. An initial target for this trade would be the 1.8400 region, where the price may encounter additional resistance.
In Summary
GBP/CAD is at an important level in the daily chart, with both Buying and Selling possibilities depending on what comes next. From a technical point of view, a Sell opportunity can appear if the price respects the 1.7870 ~ 1,7930 region.
A buying opportunity could appear depending on Consumer Price Index data to be released on Wednesday and the breakout of a resistance level at 1.8200.
Disclaimer:
74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. This content is not intended for nor applicable to residents of the UK.
Following its engagement with resistance on the daily chart, the price began to show signs of exhaustion. On 12 November, the pair broke below its established uptrend line, indicating a potential reversal or, at the very least, a deeper corrective pullback in the short term.
Support and Resistance Context
Historically, once a support level is breached, it often transforms into resistance. Thus, the area where GBP/CAD broke the uptrend line may now act as a barrier preventing further price increases.
Resistance and Fibonacci Confluence
The breakout point of the ascending trendline now corresponds to the zone between the 38.2% and 50% Fibonacci retracement levels of the recent downward movement. This area, which previously provided support to the price, is positioned to play a vital role as resistance during any corrective phase.
Potential Selling Opportunity
The break below the trendline indicates a potential weakening in bullish momentum. A retracement to the 38.2% to 50% Fibonacci region would constitute a healthy correction, allowing sellers to position themselves at a key technical confluence.
This retracement area aligns with the prior breakout point of the trendline and coincides with a newly established resistance level, significantly increasing the likelihood of price rejection.
Sell Entry: A viable selling opportunity may arise if the price retraces to the 1.7870 to 1.7930 zone and displays signs of rejection, such as the formation of a Pin Bar or Engulfing candlestick pattern on the daily chart.
Target Projections: The initial target could be set at the recent low of 1.7700, with a further extension down to 1.7300, where the price may find new support. Notably, the 1.7300 level represents a crucial historical resistance that could now serve as significant support.
Stop Loss: A protective stop loss should be positioned above the 1.8070 level, the historical resistance, to shield against a potential reversal in the upward trend.
An alternative scenario
While the resistance observed on the daily chart is significant, traders should remain vigilant for a potential breakout above this level, as it could propel the GBP/CAD towards the next resistance target of around 1.8400. Additionally, the upcoming release of the Consumer Price Index (CPI) for the British Pound on Wednesday is a crucial factor to consider, as it may set the tone for future monetary policies in the UK.
If inflation comes in higher than anticipated, it could lead to a more restrictive monetary policy in the medium term. Should this occur, GBP/CAD might break through the resistance level and continue its upward trajectory on the daily chart.
In this scenario, a buying opportunity could materialise if the CPI data exceeds expectations and the price successfully breaks above the resistance level. An initial target for this trade would be the 1.8400 region, where the price may encounter additional resistance.
In Summary
GBP/CAD is at an important level in the daily chart, with both Buying and Selling possibilities depending on what comes next. From a technical point of view, a Sell opportunity can appear if the price respects the 1.7870 ~ 1,7930 region.
A buying opportunity could appear depending on Consumer Price Index data to be released on Wednesday and the breakout of a resistance level at 1.8200.
Disclaimer:
74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. This content is not intended for nor applicable to residents of the UK.
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