Canadian Dollar Resilience Sees GBP/CAD Testing Support Near 1.66 on Charts

 

"Investors have turned risk averse despite the government support, affecting the trades in our short-term recommendation list" - UBS Global Wealth Management.

 

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The Pound to Canadian Dollar exchange rate's month-long rally appeared to be stalling in midweek trade when a rebounding U.S. Dollar and resilient Loonie led GBP/CAD to test an emerging technical support near 1.66 on the charts. 

Canada's Dollar held up better than many other major counterparts as U.S. exchange rates attempted to rebound from earlier losses in Wednesday trade while stock indices came under further pressure amid another day of losses for shares of financial firms. 

The net effect placed GBP/CAD on a tentative course for a second consecutive intraday setback after a month-long rally appeared to stall in the prior session when Bureau of Labor Statistics data suggested that U.S. inflation pressures remained stubbornly elevated last month.

"Trend momentum is positive on the daily study while intraday and weekly DMI measures are also aligned bullishly for the GBP. This should mean limited scope for GBP losses in the short run and a fairly quick push on higher," says Shaun Osborne, chief FX strategist at Scotiabank.

"The GBP should remain well supported on minor dips from here. Support is 1.6610/15, close to where the GBP is trading now.  Key support is 1.6480/85," he writes in a Tuesday review of the Canadian Dollar charts. 


Above: Pound to Canadian Dollar rate shown at 2-hour intervals with selected moving averages and Fibonacci retracements of mid-February rally indicating possible areas of short-term technical support for Sterling. Click image for closer inspection. 

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GBP/CAD had until Tuesday benefited from a broad sell-off in U.S. Dollar pairs, which also appeared to weigh on other North American currencies like the Canadian Dollar, after funding pressures at some U.S. lenders snowballed into the failures of Silicon Valley Bank (SVB) and others at the weekend. 

"Investors have turned risk averse despite the government support, affecting the trades in our short-term recommendation list. Our short EUR/long CHF position hit its target at 0.975, and our short GBP/long CAD position hit its stop-loss at 1.67," says Thomas Flury, an FX strategist at UBS Global Wealth Management. 

"Currency markets have since calmed down, and the GBP/ CAD cross has fallen back into its old trading range. However, the risk of further market uncertainty and sudden moves remains," Flury adds. 

federal intervention on Sunday has since circumvented any prospect of panic spreading among depositors of other firms after concerns about the ready availability of deposits led to a 'bank run' that played an instrumental role in shuttering SVB at the weekend.

Worries about the possibility of stifled bank lending to the broader economy have since led economists to write off earlier forecasts for the Federal Reserve (Fed) to lift its interest rate notably further in the months ahead, weighing additionally on North American currencies while lifting GBP/CAD in the process. 


Above: Pound to Canadian Dollar rate shown at daily intervals with selected moving averages indicating possible areas of short-term technical support for Sterling. Click image for closer inspection. To optimise the timing of international payments you could consider setting a free FX rate alert here.


"We think the market will place more weighting on financial stability over price stability for now," says Mazen Issa, a senior FX strategist at TD Securities. 

"That could restrain market pricing in a much higher terminal rate from the Fed's dot-plot at this juncture," he adds following a review of the U.S. inflation data. 

Tuesday's stubborn core inflation figure led prices in derivative markets to reflect a better probability of the Fed still raising its interest rate again next week, seemingly placing a floor under the U.S. Dollar, which may have benefited further on Wednesday from risk aversion in other financial markets.

"CS shares are getting hit hard. Risk has broadly turned as well," says Brad Bechtel, global head of FX at Jefferies.

"The FX space is showing a safe haven bid for USD finally which seemed to really lag in this liquidity crisis in the banking sector. DXY ripped higher from 103.80 to 104.40 currently as EUR/USD and GBP/USD finally got religion," Bechtel says in Wednesday market commentary.


Above: Pound to Canadian Dollar rate shown at weekly intervals with selected moving averages indicating possible areas of short-term technical support for Sterling. Click image for closer inspection. 

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