GBPCAD has recently broken below a double top pattern visible on its longer-term time frames and is now forming a new reversal pattern. A head and shoulders formation can be seen on the pair’s weekly time frame and price is currently testing the neckline around 1.8200.
A break below this support area could set off a longer-term downtrend of around 2,500 to 3,000 pips, which is roughly the same height as the chart formation. However, the 100 SMA is still above the 200 SMA and is not showing signs of any downward crossovers yet so the path of least resistance is to the upside.
Both RSI and stochastic are pointing down to indicate that sellers are taking control of price action. If they fail to do so and the neckline holds as strong support, GBPAUD could pull back up to the recent highs at 1.9000.
The main catalyst for a potential breakdown would be an exit from the EU by the UK, with the referendum set to take place next week. So far polls are showing a slight lead in favor of those voting to leave the region, adding downside pressure on the pound due to additional financial and economic uncertainties that this could bring.
Data from the UK has also been weaker than expected so far this week, as both headline and core CPI readings failed to show any gains in price levels. UK jobs data is due today and a 1K drop in claimants is eyed while the average earnings index could fall from 2.0% to 1.7% to indicate slower wage growth.
The BOE is set to make its interest rate decision on Thursday and even though no actual changes are eyed, Governor Carney is expected to make an effort to sway voters into staying in the EU. But if this fails to make an impact on polls, pound pairs such as GBPCAD could be in for more losses.
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