Bearish Shooting Star candlestick at the top of the rising channel

• GBP/CAD formed a bearish candlestick pattern after a brief break above a channel line.
• This could be a sign that a pullback is about to unfold, however, the downside pressure has been limited so far.

GBP/CAD temporarily broke above the upper channel line of a long-term rising channel before falling back and closing (Friday) near where it opened.

The pattern thus formed is a Japanese Shooting Star candlestick (orange rectangle on the chart below) which is a short-term bearish sign, especially if followed by a bearish day, as appears to be the case (so far) on Monday.

GBP/CAD Daily Chart

That said, GBP/CAD is in an uptrend in all three major timeframes – short, medium and long term. This suggests that the “current” is generally northward. Given that it is a principle of technical analysis that “the trend is your friend”, this would suggest that the odds continue to favor more upside.

However, GBP/CAD is also showing a bearish divergence with the MACD momentum indicator (dashed red lines). Although the price has risen to a much higher peak compared to July 12, the MACD is actually lower. This is a bearish sign and suggests a higher chance of a pullback developing. However, given the strong uptrend, the pullback could only be a temporary selloff.

If there is a correction, however, it could touch the 50-day simple moving average (SMA) at 1.7753.

Alternatively, a break above the Shooting Star high at 1.8245 would likely confirm that the price is moving higher. If so, it could hit a target of 1.8278, the 61.8% extrapolation of the previous move higher.

Any further optimism beyond the channel limits is likely to be short-lived. Such moves often signal “exhaustion” and are a precursor to deeper corrections on the horizon.