The possible trend reversal could lead to several downsides

• GBP/CAD may start a bearish phase after it hits the top of its channel and reverses below.
• It shows a bearish divergence with momentum.

GBP/CAD may have reversed its short-term uptrend after testing the top of its ascending channel, forming a bearish reversal candlestick pattern (orange rectangle in the chart below) and then establishing a sequence of lows and lower maxima.

GBP/CAD 4 hour chart

Although GBP/CAD has pulled back in recent periods, it is likely to have reversed the trend and a break below 1.7946 (25 September low) would confirm more downside. Downside targets are at 1.7754 (Sep 17 low and 50-day SMA), 1.7694 (Sep 16 low) and 1.7603 (Sep 4 low) and 1.7407 (Aug 8 low) . A break below 1.7907 would provide stronger confirmation.

Although GBP/CAD is in an uptrend on all time frames, it is still oscillating in an ascending channel. Therefore, it is likely to enter one of its bearish countertrend phases.

The Relative Strength Index (RSI) has formed a bearish divergence with price compared to the September 17 low (dashed red line in the chart above). Although the price was much lower on September 17, the momentum was not. This suggests that underlying weakness could push prices lower.

A break above the Shooting Star high at 1.8245 would confirm a resumption of the uptrend. If so, the next target lies at 1.8278, the 61.8% extrapolation of the previous move above.

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