It unfolds down the leg inside the ascending channel

• GBP/CAD is going through a sharp decline in a rising channel.
• It 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.

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.

GBP/CAD is in an uptrend over the medium to long term as it swings 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 crossed below the signal line, providing further evidence that prices will decline.

The first signs of weakness came when the pair tested the upper channel line and formed a Japanese Shooting Star candlestick reversal pattern on September 20 (orange rectangle in the chart above). It then consolidated for a while before starting to fall properly on Tuesday.