The bottom leg extends inside the riser channel

• GBP/CAD fell sharply in a rising channel.
• The pair is likely to continue to decline as the countertrend reaction runs its course.

GBP/CAD is developing a leg down in an ascending channel. It will likely continue lower to at least the 100-day blue moving average (SMA) at 1.7641. A break below the October 3 low of 1.7720 would cement bearish bets.

The pair is in a short-term downtrend and given the principle that “the trend is your friend”, the odds favor the continuation of that trend.

GBP/CAD Daily Chart

Further downside targets are at 1.7603 (September 4 low) and 1.7407 (August 8 low). In the most bearish scenario, the price could drop to the lower line of the channel at 1.7375.

That said, short-holders are advised to be cautious as GBP/CAD is in an uptrend over the medium to long term time frames as it oscillates higher in an ascending channel. Therefore, there is a risk of a larger reversal occurring unless the current sell-off marks the start of a deeper downtrend. This is possible given its steepness.

The Moving Average Divergence Convergence (MACD) has suddenly crossed below the signal line, providing further bearish confirmation.

The formation of a Japanese Shooting Star candlestick reversal pattern on September 20 (orange rectangle in the chart above) gave the first signs of weakness. It then strengthened for a while before starting to fall properly on October 1st.