GBP/CAD traded lower yesterday after the BoE hiked interest rates but warned over recession risks to the UK economy. The dip brought the rate below the 1.5925 barrier, marked by the low of April 28th, a move that confirmed a forthcoming lower low on both the 4-hour and daily charts. This, combined with the fact that we can draw a downside resistance line from the high of February 22nd, paints a positive near-term picture.
Today, the rate rebounded somewhat after nearly hitting again support at 1.5775, and thus, we cannot rule out some further recovery, even back above 1.5925. However, as long as the pair stays below the aforementioned downside line, we will see decent chances for the bears to jump back into the action, perhaps from near the high of May 4th, at 1.6105. A possible slide from there could result in another test near the 1.5775 zone, the break of which would confirm another forthcoming lower low and perhaps set the stage for declines towards the low of August 1st, 2013, at 1.5583.
Shifting attention to our short-term oscillators, we see that the RSI rebounded and exited its below-30 zone, while the MACD, although below both its zero and trigger lines, shows signs of bottoming. Both indicators detect slowing negative speed, which adds more credence to the view that some further recovery may be on the cards before the next leg south.
On the upside, we would like to see a clear recovery back above 1.6203 before we start examining a bullish-reversal case. This would not only confirm a forthcoming higher high on the daily chart, but also the break above the downside resistance line drawn from the high of February 22nd. The bulls could then get encouraged to test the 1.6290 hurdle, the break of which could carry extensions towards the 1.6435 or 1.6504 areas, marked as resistances by the highs of April 22nd and 14th, respectively.
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