GBP/CAD: Pulling Back to A Key Support Area

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The Pound to Canadian Dollar exchange rate is likely to pull back to a key support level in the short term, but the multi-week setup remains constructive.

Last week saw a now all-too-familiar development in the GBP/CAD setup: a test and failure of that significant horizontal support at 1.7353.

One only needs to look at the weekly chart to illustrate how Pound Sterling strength tends to be rejected at this level, with subsequent pullbacks often proving quite deep:

The above chart also shows the 50-week moving average which has offered support on any bouts of weakness in the past.

If the 200 DMA is to step in and offer support, then we could be looking for the current pullback to extend to approximately 1.70; note, this is an inexact science given the 200-week MA is rising.

Zooming into the daily chart shows some support can be found at the 50-day moving average, which could stem GBP/CAD downside in the coming days, particularly given it is a quiet week for both the UK and Canada data-wise:

For now the GBP/CAD trend remains supportive according to our Week Ahead Forecast rules, on account of the exchange rate residing above the 50-, 100- and 200-day moving averages.

If the 50 DMA breaks, we will be on alert for a change in trend, growing more confident on a breach of the 100 DMA and calling for a downtrend once the 200 DMA is broken.

To summarise, the potential for further weakness over the multi-day timeframe is high, with a backstop currently seen at the 1.70 area, but owing to the broader uptrend, we would expect upside to ultimately resume over the coming weeks with another test of the 1.7353 barrier being possible.