GBPCAD could be in for a strong rally, as a major reversal pattern is forming on its 4-hour time frame. Price failed in its last two attempts to break below the 1.8000 area, creating a double bottom pattern, which is a classic uptrend signal.
The 100 SMA is below the 200 SMA, though, so bearish pressure could still be in play. Price has yet to test the pattern’s neckline at 1.9200 before confirming that an uptrend is due. The chart pattern is around 1200 pips in height so the resulting long-term rally could be of the same size.
Stochastic is indicating overbought conditions, which means that buyers are taking a break and letting sellers take control. Similarly RSI is moving south so GBPCAD could follow suit. If so, price might make another test of the 1.8000 support.
The biggest catalyst for volatility would be the EU referendum tomorrow, as this would decide the fate of the UK. A vote to exit could mean sharp losses for the pound and a likely break below the 1.8000 level for GBPCAD. On the other hand, a vote to stay in the EU could lead to an unwinding of pound shorts, possibly leading to a neckline breakout.
So far Brexit surveys are showing a small lead in favor of voters who want to stay in the EU, but the gap is so small and there’s a considerable number of undecided voters, which means that the vote could still come down to the wire. Once the results are starting to show a clear lead, possibly by Friday morning UK time, GBPCAD could pick a direction.
As for the Canadian dollar, the pickup in crude oil prices is supporting the currency but the commodity price could also be vulnerable to risk sentiment after the Brexit vote.