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GBP/CAD sparks my interest after the odds of a rate cut have risen recently, and as Canada continues to surprise with positive economic data.

Descending Channel on GBP/CAD

GBP/CAD 1-Hour Forex Chart
GBP/CAD 1-Hour Forex Chart

Checking out another long Loonie play, this time against the British pound after we got fresh commentary from the Bank of England that could draw in Sterling sellers. Last week, BOE Governor Mark Carney hinted at a potential rate cut coming soon to boost the British economy. The reaction to this surprise development was obviously a bearish one for GBP, and since then more BOE members (Gertjan Vlieghe and Silvana Tenreyro) have come out supporting the idea of a rate cut soon.

And once again I’m looking at the Loonie as my counter currency to go long, again for the same reasons that I mentioned in my EUR/CAD short idea last week, as well as on the better-than-expected Canadian employment update last week which likely supports the idea we will not see a rate cut from the Bank of Canada any time soon.

Looking at price action, GBP/CAD on the one hour chart is starting to form a descending channel with the market currently trading near the bottom just under 1.7000. I’m looking to scale into a short position, starting not too far from current levels just in case the BOE rate cut speculation starts to give momentum to Sterling shorts. My stop will be will above the channel, and my max target will be twice the weekly ATR for a strong potential return-on-risk if the trade goes my way over the next few weeks.  Here’s what I’m going to do:

Short half position at 1.7000, max stop at 1.7260 with 0.50% risk, max target at 1.6300

Short half position at 1.7195, max stop at 1.7260 with 0.50% risk, max target at 1.6300

If both positions are triggered, I’m only risking 1.00% of my account on this trade and I’ve got max potential return-on-risk of around 5.7:1. Depending on what we get from the latest data, central bank events, and geopolitical developments, I may adjust my entry strategy if the bias makes sense and or cancel my orders out all together.

What do you guys think? Are you watching  GBP/CAD for a potential short position as well? Let me know in the comments section below!

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