GBP/CAD Rate Rebounds, But Not Enough to Signal Reversal

The Pound to Canadian Dollar exchange rate had been falling reasonably predictably up until it based and reversed at the August 24, 1.6008 lows before bouncing strongly higher.

It now appears to have broken above a key resistance level at the 1.6200, July 21 lows and is ploughing on higher towards its next target at the major trendline for the move down, which it is expected to meet at around 1.6400.

Analysts, such as Scotiabank's Shaun Osborne are bullish short-term but bearish longer-term. 

"Shorter-term (hourly) charts are bullish, and bearish daily signals have softened to neutral. DMI’s are converging and suggestive of a shift in the balance of risk.

"The multi-month descending trend channel implies resistance in the mid-upper 1.63 area.

"We are near-term bullish, medium-term bearish GBP/CAD," said Osborne.

The pair is rising strongly as we write and has just broken above the 1.6300 level - we would expect it to continue to the trendline, at roughly 1.6400.

Despite the strong rebound the trend is still technically down and remains so until a stronger reversal signal occurs.

Such a signal might come from the pair breaking above the trendline, for example, but until such time the only indications, the current move up is anything more than a correction is its steepness, which predicts a continuation higher.

As such, officially we remain bears, if skeptically so, but we would require the gesture of a clear break below 1.6000 - signaled by a move below 1.5950 - for confirmation of more downside, to a target at 1.5800.

Alternatively, our bullish short-term call for the exchange rate to rise to around 1.6400 still stands, but is made without strong conviction.

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