Pound to Canadian Dollar, Key Level Pierced, Bullish Outlook

 

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GBP/CAD has been moving sideways since the middle of January as markets tried to make up their mind which way to go.

It now looks as if Sterling could end up on top after this bout of indecision following the pair's recent break to new highs.

Oil's recent woes which have seen Brent crude fall below $50 a barrel have been a major contributor to the Canadian Dollar's (Loonie's) decline, as oil is the countries largest export.

Despite some ‘backing and filling’ in a throwback move to the supporting highs today, GBP/CAD looks poised to move even more aggressively to the upside thereafter.

The key determinant for our bullish outlook was the break above the level of the 1.6631 January highs as this showed the sideways trend was probably over.

From there, the exchange rate will most likely continue moving higher – next stop being the 200-day MA at 1.6780.  

Major moving averages are dynamic levels of support and resistance where prices often stall or even rotate, so we see a chance of that happening here.

Assuming the current move holds above the 1.6631 level we see a strong possibility the uptrend will resume.

A break above the day’s 1.6713 highs would provide confirmation of such a move.

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Key Data

Wednesday's oil inventory data which continued to show a massive overhang have led to the most recent move higher in GBP/CAD as it weakened the CAD side of the pair.

Oil is such a fundamental source of revenue for Canada the Loonie is tightly correlated to its fluctuations.

As far as other outstanding data goes, the main release in the back end of the week is Canadian Inflation data out on Friday at 12.30 (GMT).

Inflation data is forecast to come out at 2.1% year-on-year and 0.9% month-on-month in February.

Later today (Wednesday) sees the announcement of the Federal Budget with the primary focus for FX markets being on the government’s promises to increase infrastructure spending; and if this materialises, the Loonie (CAD) will probably bounce higher.

The Pound, meanwhile, sees the next important release on Thursday, when  Retail Sales comes out at 9.30 GMT, and is expected to rise 2.6% year-on-year and 0.4% month-on-month. Core Retail Sales, which cuts out volatile food and petrol is forecast to rise by 3.1% year-on-year and 0.4% month-on-month.

Retail Sales has underperformed of late due to rising shop prices from the weak-pound which has increased the cost of imported products.

If there is yet another decline it will start ringing alarm bells for the economy and spell weakness for the Pound.

BOE’s Broadbent will also speak on Thursday, at 9.15, so we might get the first response from a BOE monetary policy member since the inflation data shock.

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