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With today’s pop higher in GBP/CAD, I think it’s now starting to get interesting as a potential short-term play as it approaches a prior strong consolidation area.

GBP/CAD Resistance?

GBP/CAD 4-Hour Forex Chart
GBP/CAD 4-Hour Forex Chart

Fundamentally, both the U.K. and Canada have seen strong economic survey data and solid GDP numbers recently, but Canada gets a slight edge for me with better inflation conditions and that pesky problem called “Brexit” that the U.K. has to possibly drag it down further.

One thing that may hold the Canadian dollar back from being a strong buy bias for me is its strong tie to the oil market, which has been in a nose dive since the beginning of March, a situation that my main man Forex Gump broke down nicely in his latest post: Q&A: What’s Up Crude Oil These Days?! This sentiment has taken oil down around 12% in the last few weeks and likely has been a contributor to the Loonie’s recent weakness, which could be possibly over done.

In terms of price action, this means we’re now seeing GBP/CAD nearly trade at a previous strong area of interest around 1.6700, which saw quite a few reversals throughout 2016. And give that on the higher time frames this pair is in a downtrend, this area could draw in sellers to play a few things:

  • a stabilization in the oil market (now testing a rising trendline as seen in Forex Gump’s post)
  • a potential further decline in Sterling as the Brexit process begins at the end of the month
  • a small positive interest rate differential in favor of the Loonie

So, that’s why I’m short biased but I think with a BOE member voting for a rate hike at the last monetary policy meeting and oil’s falling not yet stabilizing, I think GBP/CAD might make it up above that crucial 1.6700 area. I’ll wait for that and see how the story develops for both the U.K. and oil prices, but if price action stabilizes and starts to reverse, I’m not going to hesitate to throw on a small position to play my bias for a swing trade.

Stay tuned and 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.

Risk Disclosure
Pipcrawler’s Q4 2016 Blog Trading Performance

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