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GBP/CAD Tests Major Neckline Support
Since the beginning of the month, GBP/CAD has been slowly dribbling lower and today, the decline in the currency pair stopped short of a major support level. Although the pair ended the day well of its lows, a sign that support could be holding, from a fundamental perspective, the currency pair is vulnerable to additional losses which means that this support could be re-tested and broken. Today’s rebound was caused by U.S. dollar weakness, which drove GBP/USD higher as USD/CAD held steady. After the Bank of England’s decision to keep their 2014 GDP and CPI forecasts unchanged and their reluctance to signal plans to tighten monetary policy, we believe that there will be further profit taking on long GBP/USD positions which will be negative for GBP/CAD.
Taking a look at the daily chart of GBP/CAD, the neckline of the broad head and shoulders pattern is somewhere between 1.8230 and the April swing low of 1.8167. If this support zone is broken, it will be clear sailing for the currency pair down to 1.80 and if 1.80 is broken, the next target for the move will be 1.7800. On the upside, if GBP/CAD rises back above 1.8425, the downward bias for the pair will be negated.