Pound-Canadian Dollar Rate Back In Its Comfy Zone
- Written by: Gary Howes
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The pound-Canadian dollar exchange rate rose 1.0% last week as it extended a run of five successive weekly advances.
That suggests an exchange rate that has moved into a comfortable short-term uptrend, and we'd be inclined to bet on further gains under such a scenario.
But when we pan out and look at GBP/CAD action over the past year, we're greeted by a chart that tells us the pair has merely mean-reverted back into its comfort zone over recent sessions: mean reversion does not = an uptrend.
The daily chart shows the pair has spent the majority of the past year between 1.84 and 1.87, with moves out of these tramlines quickly pared by a mean reversion. This speaks of a strong equilibrium in the GBP/CAD rate that's proving difficult to shake under the current FX market regime.
The chart shows the 200-day moving average sits perfectly in the middle of that zone: it is trending sideways, reinforcing the notion that fair value rests around the mid-way point at 1.8550.
Now that the market has recovered to its comfort zone, we are inclined to suspect that the recovery of GBP/CAD in recent days will fade.
This is particularly likely given that this week brings with it the prospect of increased uncertainty out of the Middle East, which tends to support oil prices and oil proxies such as the CAD.
Our Week Ahead Forecast therefore looks for a further paring of the recovery to 1.8550 and even 1.84, with strength being capped at 1.8650.
