"We look for firm support on dips to the mid/upper 1.57s now" - Scotiabank
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The Pound to Canadian Dollar exchange rate's outlook has improved further in recent trade and Sterling could now have scope to reach some of its strongest levels since the end of the first quarter after establishing a foothold above the 1.57 handle last week, according to technical analysis from Scotiabank.
Canada's Dollar fared better than Sterling during the opening sessions of the week after an almost two month rally in GBP/CAD stalled following a run-in with technical resistance on the charts late last week, although some say this likely marks only a temporary setback for the Pound.
"GBP has gained, and held above, the 50% Fib resistance point (1.5738) of the 2022 decline and looks to have sufficient momentum (bullish intraday and daily DMIs) to take a run at the 61.8% retracement (1.6125) after closing out last week above 1.5750," says Shaun Osborne, chief FX strategist at Scotiabank.
"Recall that longer run price action does indicate a major low/reversal formed around the 1.41 spike low reached in late Sep, delivering the squeeze back above major trend resistance last month. We look for firm support on dips to the mid/upper 1.57s now," he adds in a Monday review of the GBP/CAD charts.
GBP/CAD still faces technical resistance just above 1.59 but will have opportunities to overcome it in midweek trade.
Above: Pound to Canadian Dollar rate shown at daily intervals with selected moving-averages and Fibonacci retracements of January 2021 and February 2022 downtrends. indicating possible areas of technical resistance for Sterling. Click image for closer inspection. If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.
This is as Sterling will likely be sensitive on Wednesday to the message embedded in the latest S&P Global PMI surveys of the UK manufacturing and services industries that are out ahead of similar data in the U.S., which could impact GBP/CAD indirectly through its effect on the U.S. Dollar.
"The broad-based softening in demand will continue to weigh on the S&P Global manufacturing and services PMIs in November across both the Eurozone (market f/c: 46.0 and 48.0 respectively) and the UK," warns Sean Callow, a senior FX strategist at Westpac in Sydney.
"The FOMC November meeting minutes will provide further insights into the near-term path for policy. The US data calendar is crowded, including releases brought forward ahead of Thursday’s Thanksgiving holiday. Both the S&P Global manufacturing and services PMIs are expected to weaken further," he adds.
The latest UK economic figures have not been as bad as was expected by economists including public finances figures released on Tuesday and retail sales numbers out last Friday, which have proven supportive of Sterling.
However, the Pound to Canadian Dollar rate will also potentially remain sensitive to the direction of the U.S. Dollar and particularly USD/CAD.
This is because GBP/CAD tends to always closely reflect the relative performance of Sterling and the Loonie when each is measured against the U.S. Dollar and has often had a negative correlation with USD/CAD this year.
"Gains to the 1.35 area are a sell from a technical point of view and we will have no tolerance for more significant or sustained gains back above the figure area in the next few days," Scotiabank's Osborne says in reference to USD/CAD.
Wednesday's release of minutes from November's Federal Reserve (Fed) meeting are the highlight of the week for the U.S. Dollar.
Above: Pound to Canadian Dollar rate shown at weekly intervals with selected moving-averages and Fibonacci retracements of January 2021 and February 2022 downtrends. indicating possible areas of technical resistance for Sterling. Click image for closer inspection. To better time your payment requirements, consider setting a free FX rate alert here.
The minutes will scrutinised closely for clues about how many on the Federal Open Market Committee agreed with the sentiments expressed by Chairman Jerome Powell at the subsequent press conference.
He told reporters after November's decision that U.S. data had, until then, argued in favour of a higher end point or peak for interest rates than the 4.75% suggested in September's FOMC forecasts.
"Recent Fedspeak has undoubtedly added a layer of caution to the dovish pivot enthusiasm, which could mean investors may also be more reluctant to overinterpret dovish signals," says Francesco Pesole, a strategist at ING.
"We continue to see the dollar at risk of new brief bearish waves this week, but we note that the environment has now turned more benign for the greenback, and this may be laying the groundwork for a re-appreciation into year-end, which is our baseline scenario," he adds.