GBP/CAD broke below its consolidation at the big 1.7000 back in March when prices of crude oil – one of Canada’s largest exports – shot higher amidst Russia’s attacks in Ukraine.
Thing is, the pair hasn’t popped up a green monthly candlestick since.
And why not?
For one thing, the U.K. has a leadership crisis on top of the “usual” crises in the region.
In the U.K.’s case, uber high inflation and interest rate hikes led to weaker consumer activity and even lower consumer confidence. These are leading investors to price in the Bank of England (BOE) raising its rates further while the economy deals with a very possible recession.
Meanwhile, Bank of Canada (BOC) Governor Macklem just hinted that inflation has “peaked” for Canadians in June. BOC will still likely raise its rates, but markets are getting comfortable talking about the end in sight for the central bank’s easing efforts.
Will these themes finally drag GBP/CAD below its 1.5400 support?
As you can see, 1.5400 marks the lowest range support that GBP/CAD has EVER seen. Sure it dropped to 1.4850 back in May 2010 but it eventually traded up to the 1.5400 area of interest.
With Stochastic in “oversold” territory and GBP/CAD hanging out at the major support zone, you can bet that a lot of GBP buyers are eyeing a possible bounce.
Good news from the European region or an anti-comdoll theme can push GBP/CAD to 1.6000 or 1.6200 in the next few months.
However, if market themes don’t change and GBP/CAD doesn’t start showing green candlesticks, then the pair is vulnerable to a downside breakout that might drag it back to its 1.4850 lows or even new all-time lows.
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