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The GBP/CAD's price action is currently undergoing through a transitionary stage – the existing range-trading environment is about to become trending. This process is not going to be finished overnight; however, being aware of the long-term trends would allow traders to exploit all present and future trading opportunities.
As it is about to be seen below, the GBP/CAD is currently in the early stages of establishing a new bullish trend. This underlying scenario could be exploited in different ways, depending on the trader's preferred timescale. Therefore, the purpose of today's analysis is to illustrate the longer-term trading opportunities concerning the expected emergence of a new bullish trend. Additionally, contrarian trading opportunities in the short-term are also going to be outlined.
1. Long-Term outlook
As can be seen on the daily chart below, the underlying market sentiment has already morphed once in the wake of the initial coronavirus crash. The previously bearish market outlook was subsequently overtaken by the presently subdued range-trading conditions. The underlying range spans between the 38.2 per cent Fibonacci retracement level at 1.71191, which serves as its upper boundary, and the 23.6 per cent Fibonacci retracement level at 1.68997, which represents the range's lower boundary.
Notice the Head and Shoulders pattern, from which the last significant dropdown was subsequently transformed into the aforementioned range. It signifies the underlying market pressures that are prompting the price action to behave as it does. As can be seen, the GBP/CAD is currently acting in a similar manner, with the only difference being that the newly emerging Head and Shoulders pattern is inverted.
The Inverted Head's deeper bottom followed the Inverted Left Shoulder. Afterwards, the price action attempted to go higher, but it rebounded from the 38.2 per cent Fibonacci. The last two peaks, which are represented by the blue rectangles, outline the neckline of the Inverted Head and Shoulders Pattern. All of these observations are important because they can be used to project the likely future behaviour of the GBP/CAD.
If the Inverted H&S Pattern is to be concluded, then we can anticipate a new dropdown towards the 23.6 per cent Fibonacci retracement level (or the 1.68489 price level represented by the purple horizontal line), which would signify the completion of the Inverted Right Shoulder. These assertions correspond to the aforementioned opportunities for contrarian trading.
Afterwards, the longer-term expectations concerning the emergence of a new bullish trend can begin to be realised. The price action would have to rebound from the Right Inverted Shoulder's bottom, and then start rising further north. The longer-term target level for such a bullish trend is encompassed by the 61.8 per cent Fibonacci retracement level at 1.74738.
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