GBPCAD Base Building?

GBPCAD is one pair I’m monitoring with interest currently. The market has been trading lower over the year, tracing an orderly bearish channel from the roughly 1.65 highs down to the mid-1.53 lows. However, over the recent declines we’ve seen strong bullish divergence on momentum studies, suggesting potential for a reversal in the near-term. Price has recently been stalled along support at the 1.5354 level and has attempted to breakout above the channel top. While 1.5354 holds, the pair looks to be establishing a base, putting the focus on a breakout higher. Bulls can look to trade a break of the 1.5744 highs targeting 1.6109. Worth noting that the retail market is currently 85% long GBPCAD, suggesting that there might yet be more range-like trading before any reversal higher, including potential for a further test of support. The risk here is obviously that the longer-term downtrend continues and we simply breakdown through lows, in which case I will reassess.

Keep An Eye On

Canadian and UK CPI will be closely watched this week. On the back of US CPI moderating in July, traders are keen to see if this marks the start of a trend to be seen elsewhere. With both the BOC and BOE firmly committed to tightening, this week’s inflation will be key. If either reading is seen undershooting expectations this will likely weigh on rate-hike projections, pulling the respective currency lower against the other.