GBPCAD Long Term Bullish Opportunity
Opportunities through the more exotic currency crosses are often overlooked. This week, we are highlighting a long term opportunity in the GBPCAD. Technical evidence suggests that a significant low formed in November 2007 and upside potential significantly outweighs the risk.
From a technical standpoint, the GBPCAD may have formed a significant low. Notice on this monthly chart that the low in November 2007 (1.9011) spiked below a support line that is drawn off of the September 2000 and March 2006 lows. Price has held above that line since. The indicator plotted below price is a 60 period momentum oscillator. 60 months is 5 years so what this indicator tells us is how far in either direction price has deviated from its 5 year average. In November 2007, the indicator made a spike low near 5,000 (5,000 pips below its 5 year average). The 1992 low also formed after price had fallen 5,000 pips below its 5 year average. Momentum has turned up from a level that previously signaled a significant low.
This is the same line that was plotted on the monthly chart. As mentioned, price has held above the line since November. Since then, the GBPCAD has pushed through the 200 day SMA; another sign that a major low is in place.
Indicator studies such as momentum and averages help identify potential opportunities, but these tools are insufficient for pinpointing entry points and defining risk. The Wave Principle makes possible the determination of accurate entry points while taking on appropriate risk. From the May 2008 low, the GBPCAD rallied in 5 waves without making a new high (ended below the March 2008 high). Therefore, we know that the trend is up. A correction was expected and has occurred. It is possible that the corrective is over at 1.9919 (notice the red line at the center of the triangle…this indicates support from congestion). A deeper correction is possible but a long term bullish bias is warranted against 1.9288. Bullish targets will be approximated as the trend matures, but expect a test of the 2006 high near 2.35 in the year(s) ahead.
DailyFX
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