Sterling has been putting up a strong fight these days, thanks to rate hike hints from a BOE official. On the flip side, the Loonie is under pressure from rising oil stockpiles and a potential U.S. border tax on Canadian imports. Here’s what I’m watching on GBP/CAD.
GBP/CAD Trade Idea
On the pair’s 4-hour forex chart, I’m seeing a descending triangle formation with price currently testing the resistance near the 1.6500 major psychological level. Stochastic is indicating overbought conditions so a move back to support close to the 1.5950 minor psychological level might be in the cards, but an upside breakout could take GBP/CAD up by more than a thousand pips or the same height as the chart pattern.
As you can probably tell, I’ve got a slight bullish bias on this one based on recent events in the U.K. and Canada. Earlier this week, BOE official Forbes pointed out in a speech that inflation runs the risk of overshooting their target so they might need to start considering hiking interest rates soon. After all, the pound’s steady depreciation since last year’s EU referendum has put a lot of upside pressure on domestic price levels.
As for the Canadian dollar, talks of new border tariffs for Canadian imports to U.S. soil could mean a large blow to its energy sector, which is just getting back on its feet after the oil slump over the past few years. Canada’s government officials have emphasized that they are strongly opposed to this border tax reform idea and that they will act accordingly if the Trump administration forces the issue.
To make things worse, U.S. oil drillers have been ramping up production to take advantage of the pickup in price levels and the potential reliance on domestic oil sources. This has led to a larger than expected buildup in stockpiles lately, putting downside pressure on the commodity and the oil-related Loonie.
I’m eyeing a potential long position on a break past the 1.6500 barrier with an initial target at the triangle highs of 1.7500 and a stop below that recent dip to 1.6200. If the pair shows signs of testing the triangle support once more, I’m inclined to wait for an actual test of the bottom at 1.5950 before hopping in.
As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.
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