GBP/CAD Bullish Until Break Down Below Trend Line
Christopher Lewis | May 12, 2015 08:08AM ET
The British pound has been strengthening lately, as seen against several different currencies. In fact, one of the first things that we noticed was as soon as the British pound broke above the 1.55 level against the US dollar, it suddenly appeared that the British pound was rapidly going to be one of the favored currencies around the world in the forex markets.
On the attached chart, you can see the weekly timeframe for the GBP/CAD pair. What I like about this particular pair is that it mitigates any US dollar risk, because I believe that the US dollar will still be somewhat favored. Canada, and more specifically the Canadian dollar, is synonymous with petroleum. Although oil prices seem to be finding a little bit of footing, truth be told they are still somewhat depressed.
Looking at the weekly chart, you can see that there is a nice trend line that has been followed since the middle of 2013. I also have plotted 3 exponential moving averages on this chart, including the 52 week EMA, the 104 week EMA, and the 156 week EMA. With the 52 week EMA being below, the 104 week EMA being green, and the 156 week EMA being orange. This is essentially the one year, 2 year, and 3 year moving average. This is a great way to follow what the longer-term trend is in a particular currency pair, as it is quite common to see trends in the forex market run for 2 to 4 years.
As you can see, the one year moving average has been supportive over the last couple of weeks, so therefore as we fan out the moving averages and get a nice spread, something that is indicative of a strong trend, it looks as if we’re going to continue going much higher. With this, we are very bullish of the GBP/CAD pair, at least until we break down well below the trend line. We believe that this is indicative of a pair that you can hold as an investment. This isn’t some type of short-term “get rich quick” type of trade, rather one that you can collect swap on, as well as get primary capital appreciation. We believe that this pair continues to go much higher, and look at pullbacks as potential buying opportunities.
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