Pound-to-Canadian Dollar Week Ahead Forecast: 1.88 Ceiling Still in Play

Image © Bank of Canada

The pound to Canadian dollar exchange rate is starting the new week and month on a firm footing, with GBP/CAD trading around 1.8659.

The pair has been trending higher since the start of January, supported by a constructive technical backdrop that continues to favour an extension of the move.

Sure, last week the pair dropped a per cent over the course of Thursday and Friday last week, but that can be viewed as an unwind from near-overbought conditions at this point in time.

GBP/CAD remains above its 200-day exponential moving average (EMA), and while price holds above this level the broader bias is likely to remain upward.

The immediate target for the week ahead sits at 1.88, which marks last week’s highs and a level that has repeatedly shaped price action.

However, it is difficult to adopt an outright bullish stance beyond that point, as rallies above 1.88 have consistently met heavy resistance.

Numerous advances have topped out in this region before turning lower, suggesting the market views sterling as expensive against the Canadian dollar at these levels.

That behaviour indicates traders are increasingly willing to position for reversals once GBP/CAD pushes into the upper end of the recent range.

As a result, while the near-term setup remains constructive, the scope for further gains appears limited and the risk of another pullback remains elevated.

The earlier drift higher in GBP/CAD was largely fuelled by a broad selloff in the U.S. dollar, which propelled GBP/USD higher and indirectly lifted the cross.

This price action underlines that GBP/CAD remains sensitive to moves in the dollar, with further USD weakness likely to keep the pair supported.

Above: CAD has been a relative laggard in the G10 over the past month.

However, the dollar’s selloff through late January has shown signs of losing momentum, a development that should help insulate the Canadian dollar from additional losses.

Attention now turns to Friday’s labour market data from both North American economies, which could inject volatility into the pair.

Canada is expected to report job gains of around 7,300 in January, with the unemployment rate seen holding steady at 6.8%.

A stronger outcome would likely leave the Canadian dollar ending the week on a firm note, pushing GBP/CAD back toward the 200-day EMA near 1.85.

Conversely, a softer set of numbers would bring the 1.88 ceiling back into focus, keeping the upper boundary of the range firmly in play.