Bearish Wedge May See Breakout for Pound/Canadian Dollar

The British Pound could see some massive selling in very near-term against the Canadian Dollar. On a 1-hour chart we see the pair consolidating within the 1.9150-1.9200 range. As the GBPCAD approaches the end of this bearish wedge the moment of truth may be decided upon by traders eager to get in on this breakout opportunity.

A short play would be naturally appealing given that the broader trend appears to be in that favor. Fundamentally speaking, traders have been and may continue to price a retreat in the Sterling as the Bank of England is expected to cut rates by 100bp through 2009. Canadian monetary authorities are expected to cut rates by a meager 25bp in the Q4 of 2008 only to have them raise 50bp through the end of next year. Ultimately the narrowing yield gap will reduce the attractiveness of Sterling and favor the Loonie.

DailyFX

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