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Analysis from a leading Canadian bank says the British Pound and Euro can extend a recent short-term advance against the Canadian Dollar, although the outlook against the Dollar is a little murkier.

Last week we reported analysts at Scotiabank were alert to a prospective rebound in the Pound to Canadian Dollar exchange rate (GBPCAD), noting the decline had reached oversold conditions that were becoming unsustainable.

This pullback has since played out, leaving questions as to how long it can last and what its potential limits are.

"GBPCAD reached my bear target objective of 1.6375 (measured move target from the 1.7330 double top noted previously) last week. The snap higher in the cross since then reflects heavily oversold conditions for the GBP," says Shaun Osborne, Chief FX Strategist at Scotiabank.

Image courtesy of Scotiabank.

His latest analysis finds weekly price action is also supportive of a GBP rebound, with a bullish "hammer" pattern forming last week; net gains for the GBP this week would effectively "confirm" the reversal.

"GBP gains may extend to retest 1.6860, the bear breakdown trigger of the double top, with the potential to regain the 1.71/1.73 range above there," says Osborne.

Technical support is now found at 1.6525/75 but 1.6360 is seen as the firmer level.

Elsewhere, Osborne notes the "downside move appears to be over" for the Euro-Canadian Dollar rate.

"Weekly price action suggests a major low/reversal might be developing (bullish “morning star” candle signal, contingent on a high EUR close this week)," he says.

Image courtesy of Scotiabank.

Turning to the headline USD/CAD exchange rate, Scotiabank sees a more complex picture evolving as a mildly negative tone observed the week prior is overturned.

Instead, "USD-bullish developments on the short-term DMI studies and the weekly oscillator is leaning more positive as well," says Osborne.

Yet, "on the other hand, the USD is overbought on the intraday and daily studies and I still rather think the low 1.37 zone offers significant, long-term resistance on a monthly close basis for the USD," he adds.

Image courtesy of Scotiabank.