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The Pound to Canadian Dollar exchange rate (GBPCAD) has been trending higher since late September and technical studies suggest progress can continue until the 1.70/1.71 area.
Shaun Osborne, Chief Currency Strategist at Scotiabank, says GBPCAD's bull trend has made a little progress over the past week or so, pushing through the late July low/50% Fibonacci resistance in the low 1.68 area.
"But the 61.8% retracement resistance is prompting another consolidation in the pound’s rally. Daily price action looks choppy but the shorter-term charts suggest a bull flag pattern is developing, keeping directional risks tilted to the topside," he notes.
Above: GBPCAD technical setup, image courtesy of Scotiabank. Set up a daily rate alert email to track your exchange rate OR set an alert for when your ideal exchange rate is triggered ➡ find out more.
GBPCAD upside momentum appears to be more a function of broader Canadian Dollar weakness as opposed to a genuine outperformance by the Pound.
The CAD has come under pressure as domestic data disappoints and prompts investors to bet the Bank of Canada has completed its rate hiking cycle while at the same time raising bets that a first interest rate cut is now just a few months away.
October's inflation release showed inflation fell on a monthly basis in August, while GDP figures disappointed later in the month and suggested the economy was flirting with recession.
Last Friday's unexpected rise in unemployment added to developments that are unsupportive of the CAD.
The fundamental developments feed into a technical setup that allows those watching this market to identify likely levels that will come into play in the near- to medium term.
"Trend oscillators are supportive of additional GBP gains and limited downside potential in the cross; intraday and daily DMI signals are firmly GBP-bullish while the weekly signal is tilting mildly bullish for the pound now," says Osborne.
The Scotiabank analyst looks for support on GBP dips to the upper 1.68s while GBPCAD gains through 1.6950 suggest the rally can push on to 1.70/1.71.