GBP/CAD traded lower on Monday after hitting resistance at 1.7190 on Friday. At the time of writing, the rate is flirting with the 1.7090 area, which seems to be the neckline of a potential head and shoulders formation that’s been forming since Dec. 21. A break lower could signal a bearish trend reversal, but up until that happens, we prefer to stay sidelined.
If indeed the pair falls clearly below 1.7090, this could add more bears into the equation and perhaps allow declines towards the low of Dec. 20, at 1.7025. If that barrier cannot withstand the pressure and breaks, then we may see extensions towards the low of Dec. 16, at 1.6945, where another break could target the low of Dec. 14, at 1.6895. Should the bears overcome that obstacle, the next area to consider as a support may be the low of Dec. 13, at 1.6830.
Looking at our short-term oscillators, we see that the RSI turned down and fell back below its 50 line, while the MACD lies slightly below both its zero and trigger lines. Both indicators detect downside speed and support the notion of this exchange rate to continue sliding. Nonetheless, we repeat that we prefer to wait for a dip below 1.7090 before we get confident on that front.
To start examining the bullish case, we would like to see a clear break above the 1.7245 zone, which is the peak of Jan. 7. This could dismiss the head and shoulders formation and may initially target the peak of Jan. 6, at 1.7315. If the buyers are not willing to stop there, we may see them targeting the 1.7368 level, marked by the high of Sept. 27, or the 1.7415 barrier, marked by the high of Sept. 24.
