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- GBP/CAD is trading at the top of a long-term range
- A move above 1.7346 confirms a rally to the 1.77s
- Main release for Pound is PMI data; for the Canadian Dollar payrolls tops the list
The Pound to-Canadian Dollar rate starts the new week at 1.7311, after rising 0.71% last week, mostly as a result of a weakening CAD due in response to falling oil prices.
From a technical perspective GBP/CAD looks to be breaking out of the top of a range it has been in since it based in August and that it could surge up to a target in the 1.77s.
It has now successfully broken above the 1.7315 range highs after peaking at 1.7346 on Friday. It is now forecast to rise up to an eventual upside target of 1.7730. A re-break of Friday’s highs would provide confirmation.
The 50-week MA is at the top of the range, providing a layer of resistance which could be obstructive. Large MAs act as formidable obstacles to price-trends yet the exchange rate now appears to have broken clearly above it, and a move above the recent highs would solidify that break.
The daily chart also shows the pair in the process of breaking out of the top of the range. It has surpassed the obstacle of the 200-week MA and is also set to climb. The upside target is calculated by extrapolating the height of the range by 61.8% higher, the usual preferred method used by analysts.
The RSI momentum indicator in the lower pane is bullish after rising to a level it has not been at since April when the exchange rate was trading considerably higher in the 1.80s, and further suggests ‘pent-up’ upside potential.
Those watching the market should note that while the spot rate is at 1.7311 retail bank accounts are offering a rate of between 1.67 and 1.6830 for international payments, independent specialist providers are offering tigher spreads on the market with rates between 1.7160 and 1.7220.
The Canadian Dollar: What to Watch this Week
The main release for the Canadian Dollar in the coming week is employment data, out at 13.30 GMT on Friday, January 4.
Payrolls are forecast to rise by 5k in December from 94k in November. A greater-than-expected rise would support CAD and vice-versa for an unexpected fall. The change in full-time employment is more important - last month it accounted for 90k of the 94k total rise.
The unemployment rate, released at the same time, is forecast to show a rise to 5.7% from 5.6% previously.
Another important fundamental factor for the Canadian Dollar will be developments in oil markets, especially Canadian Select, the variety exported by Canada.
Oil is the country’s largest export so its price can impact demand for the currency.
The Canadian Crude Index is currently trading at $27.63 a barrel, which is considerably lower than the December highs in the mid-30s, and this may be why the Canadian Dollar has suffered of late.
The Pound What to Watch this Week
The main release for Sterling in the week ahead is probably key sector PMI data for December.
The first sector data scheduled for release is Manufacturing PMI out at 9.30 GMT, on Wednesday, January 2. This is forecast to show a slowdown in manufacturing activity to 52.5 from 53.1. A greater-than-expected slowdown would be bad for the Pound.
Next comes Construction PMI on Thursday at the same time. This is forecast to show a slight fall to 52.9 from 53.4 in December.
Finally, Services PMI is out on Friday at 9.30 and is forecast to show a rise to 50.7 from 50.4. Services is the largest sector in the UK and, thus, is probably the most important of the three. Just like in the case of Manufacturing, a greater-than-expected slowdown would be detrimental for the Pound.
The rest of the data from the UK is unlikely to move the Pound much. Nationwide house prices are out at 7.00 on Friday when they are expected to show a 0.1% rise in December from the previous month.
Consumer credit and mortgage lending data is also out on Friday at 9.30. Consumer Credit is expected to show a rise to £0.95bn in November from £0.9bn in October. Mortgage lending is forecast to fall from £4.1bn to £4.0bn, month-on-month in November.
Brexit headlines are also likely to drive Sterling in the week ahead, although given Parliament is in recess their importance may be more circumstantial than key.
Those looking to lock in a good GBP/CAD exchange rate ahead of a potentially volatile month and year should do so over coming days as we expect volatility to be relatively low ahead of the key Brexit vote mid-month. If you lock in an exchange rate for a major international payment you can set aside any concerns on what this volatility might deliver, find out more here.
Marshall Gittler, a market veteran and currently strategist with ACLS Global says January tends to be the most volatile time of the year in the FX market.
"That’s probably because investors who’ve wound down their activity ahead of the year-end book closing rush in to take new positions. Many hedge funds traders for example basically step back from the markets in early December so as not to jeopardize their bonuses for the year. Then in January they start up with a vengance, taking positions that they hope will net them profits over the year," says Gittler.