Remember that GBP/CAD textbook correction setup I was watching a long while back? The area of interest is holding as resistance so far and I’m waiting for some bearish momentum before hopping in.
Sterling has been tossing and turning these days mostly due to Brexit-related concerns. As Pip Diddy mentioned in his U.S. session recap, the U.K. Supreme Court decided to review the government’s appeal when it comes to getting parliament approval before invoking Article 50. This dashed hopes that the U.K. economy could extend its stay in the European Union while British lawmakers debate on how to go about the Brexit process, forcing the pound to give up its earlier gains.
As you can see from the chart below, GBP/CAD bounced right off the 61.8% Fibonacci retracement level, which was in line with the broken support around 1.6700-1.6800. Price could head back south to the swing low of 1.5775 or at least until the support closer to the 1.5900 handle.
Initially I wanted to short at the 50% and 61.8% Fib levels but decided against it, thinking that the U.S. elections might do a number on market sentiment and lead to a spike in volatility. Also, it seemed that the pair was ready to bust through the Fibs after the British High Court ruling last week and the tumble in crude oil.
This pair could still have enough downside room to cover, but I’m inclined to wait for a bit more bearish confirmation before shorting. I’ve zoomed in to the 1-hour time frame to spot this short-term rising trend line that’s holding so far. To top it off, stochastic is indicating oversold conditions on this time frame so a bounce might take place.
I’m looking at a potential sell area on a break below the trend line or possibly around the latest highs near 1.6850 after the gap gets filled and a double top forms. Either way, I could aim for the lows near 1.5900 with a stop past the 1.7000 major psychological mark if I’m able to get in around those levels.
As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
I’ll keep you posted on my actual trade entries once I’m in. In the meantime, I’m gonna grab some popcorn while watching these U.S. election results come in. How do you guys think this could turn out?
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