Short term
Trade view / 04 September 2014 at 13:50 GMT

Bottom falls out of GBPCAD, more downside ahead

FX Trade Strategist /
Instrument: GBPCAD
Price target:
Market price:

The surprise ECB rate cut and plans for other stimulus measures was the catalyst for a broad- based and sharp US dollar rally across the G7. GBPCAD plunged. Support at 1.7870-80 crumbled and the 2014 low in the 1.7760-70 area has been reached. The break of 1.7855 represented the 61.8% Fibonacci retracement of the 2014, 1.7360-1.8660 range, suggesting that both the 76.4% and 100% retracement levels are in play. The steep drop over the past two hours combined with a weaker-than-expected ADP employment report. This suggests a profit-taking bounce may be in order, providing an opportunity to sell GBPCAD at better levels. In addition, the GBPUSD technicals are bearish, with the move below support at 1.6375, while today's rise in Canadian Merchandise trade balance to $2.58 billion will limit Canadian dollar losses.

Management and risk description

This trade is vulnerable to US dollar selling vs. the majors on a disappointing US nonfarm payrolls report in addition to Canadian dollar selling if the Canadian employment report is weak, as well.  In addition, this currency pair has already dropped a long way and is vulnerable to a period of consolidation.
Note: The volatility of this currency pair necessitates a wide stop loss that can really leave a mark if it is triggered.


Entry:  Sell 1/2 position of GBPCAD at market (currently 1.7825) balance at 1.7870.

Stop: 1.7960.

Target: 1.7665.

Time horizon: 3 weeks.

Chart:  GBPCAD 30-minute noting steep drop
Source: Saxo Bank

Chart:  GBPCAD 4-hour with downtrend and break of key support noted
Source: Saxo Bank

Chart: GBPCAD  daily with Fibonacci
Source: Saxo Bank

Chart: GBPCAD  5-year daily with moving averages

Source: Saxo Bank

-- Edited by Kevin McIndoe

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— Edited by

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