Pound Sterling vs. Canadian Dollar Rate in the Week Ahead: Back Inside Range, Finds Major Support Level

Canadian Dollar

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- False breakout leaves pair back inside range

- Breakout higher expected eventually; short-term uncertain

- BOE meeting key for Sterling; labour data for CAD

The Pound-to-Canadian Dollar exchange rate is trading at 1.7129 at the start of the new week after falling almost 1.8% in the week before.

From a technical perspective the immediate outlook appears marginally bearish given the strong decline all through last week, which saw five down-days in a row although the bearish view comes with one important proviso - the pair has now reached a major support level in the form of both the 50 and 200-day moving averages (MA) at the 1.71 lows, and this increases the chance it may reverse at this level and pivot higher.

GBP to CAD daily

In the medium-term, we are still marginally bullish based on the fact the pair has broken clearly above the range highs on two occasions, as well as the up-sloping nature of the range lows which have risen over time - both are signs of bullish intent.

Although the pair failed to hold its upside breaks the range highs will probably eventually give way. The third attempt may well be successful as 'third attempts' seem to have a special significance for markets, and often result in breakthroughs.

No-where near the highs now, we are only bullish on the condition that the pair can successfully break above the range highs at 1.7526. Such a break would probably then lead to an extension to a target at 1.7625.

GBP to CAD 4 hour chart

The short-term bearish view can be more clearly seen on the 4-hour chart above which shows how the pair has fallen in a new sequence of peaks and troughs since the roll-over at the January 24 highs. This new sequence of lower lows (LL) and lower highs (LH) is the first sign of a new downtrend, and it biases the short-term outlook to continue lower.

A break below the key trough low of Jan 21 at 1.7045 would give the new, young, downtrend, increased validity, and strongly indicate a continuation down to the range lows at roughly 1.6800.

GBP to CAD weekly

The bigger picture shows how the pair fell down in a strong bearish trend from off the April highs in the mid-1.80s before consolidating in a range through from August and up until now, yet beyond the previous downtrend it gives no clear bias on market direction after the pair breaks out of the range which could be higher or lower.

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The Canadian Dollar: What to Watch this Week

January employment data out on Friday at 13.30 GMT is probably the main release for the Canadian Dollar in the coming week.

Recent weak GDP data raised doubts as to whether the Bank of Canada (BOC) would raise interest rates as - higher rates tend to support the host currency.

If the jobs data out on Friday is disappointing, therefore, it could be another nail in the coffin of higher interest rate hopes and result in downside for the Canadian Dollar (upside for GBP/CAD).

“Employment growth picked up substantially towards the end of 2018, but a lot of the growth was in part-time employment, which may explain why wage growth actually moderated during the year. A disappointing report could cast doubt on whether the BoC would be in a position to raise rates anytime soon, leading the loonie to pare back some of its recent gains,” says Raffi Boyadjian, currency analysts at FX broker

The consensus is for payrolls to rise by 6k, and the unemployment rate by a basis point to 5.7%. The difference between the number of ‘full-time’ and ‘part-time’ jobs could be a key consideration, with full-time reflecting more favourably.

Another consideration is the rising price of oil, Canada's principal export, which took the sting out of the poorer growth figures as it suggests better growth ahead on the horizon.

Other key releases and events are the balance of trade for December, out on Tuesday at 13.30; housing starts at 13.15 on Wednesday; a speech from BOC’s Lane at 13.35 on the same day and Ivey PMI 15.00, which is expected to rise above 60 in January.


The Pound: What to Watch this Week

Brexit will be the primary focus for Sterling markets in the week ahead with focus likely to be trained on whether Prime Minister May can squeeze any compromises out of the EU in regards to the Irish backstop.

Writing in the Sunday Telegraph this weekend, May said she would return to Brussels with a "fresh mandate, new ideas and a renewed determination".

MPs have voted to seek an "alternative arrangement" to guarantee the Northern Ireland border stays open after Brexit.

Once again, this weekend saw the Irish deputy prime minister say "there are no credible alternative arrangements" to the proposal.

There is a seemingly intractable deadlock in place between the UK and EU on the matter, and we wonder if this week will give us any new information on the matter.

Unless no new information that sheds clarity on the deadlock is offered we would expect the Pound to consolidate.

The main calendar event in the week ahead for the Pound is the meeting of the Bank of England (BOE) on Thursday at 12.00 GMT.

This meeting is more important than most because it will also include the BOE’s official quarterly economic forecasts, and a press conference with the BOE chairman Mark Carney afterward.

Whilst no interest rate changes are expected, the forecasts will speak volumes about the Bank’s assessment of the state of the economy, and could impact the Pound. Carney’s comments will also be closely parsed for a steer on future stance.

Data has been mixed recently and if the BOE’s assessment is negative it could weigh on Sterling - likewise a more resilient outlook would strengthen the Pound as it would make a case for multiple interest rate hikes in the event of Brexit uncertainty being removed.

Given a backdrop of heightened global growth fears and increased Brexit uncertainty the consensus seems to be tilted towards expecting a more sombre and cautious message from the Bank which would weigh marginally on Sterling.

“Policymakers had already taken a more cautious stance at the last meeting in December as the Brexit uncertainty dragged on and given the heightened anxiety about the global growth outlook since then, the Bank could go one step further and signal fewer rate hikes than currently being projected for the next three years,” says Raffi Boyadjian, currency analysts at FX broker

The other main data release for the Pound is Construction and Services PMI for January.

The week starts with the release of Construction PMI on Monday at 9.30 GMT, with estimates for a decline to 52.4 from 52.8 previously.

Services is out on Tuesday at 9.30 and is expected to drop to 51.0 from 51.1 in the previous month.

A greater than expected decline in PMIs may well be an early warning sign of a decline in the broader economy since PMIs are seen as leading indicators, and this could weigh on the Pound. Likewise, a surprise rise, suggesting underlying resilience, could strengthen Sterling.

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