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The Canadian dollar can build on its recent recovery this week.
The pound-to-Canadian dollar exchange rate rose to just above 1.90 on a number of occasions in early July, and the subsequent pullback confirms this to be a zone of significant resistance.
A rejection of the ceiling and a paring of the May-July advance now look to be the base case for the coming days and weeks.
GBP/CAD remains one of the stronger sterling crosses despite a modest pullback from this month's highs and the pair continues to trade above the rising 200-day moving average at 1.8560, confirming that the broader trend remains constructive.
However, repeated failures above 1.8915 and the recent rollover in RSI towards the low-50s suggest bullish momentum has cooled, with the market entering a consolidation phase after June's breakout.
The key question for the week ahead is whether GBP/CAD can hold above former breakout support at 1.8842 and regroup for another attempt on the highs, or whether weakening momentum results in a deeper correction towards the 200-day moving average, currently at 1.8559.
Momentum has softened; the RSI has retreated sharply from above 60 to around the neutral 50 area, indicating buying pressure has moderated. That is consistent with a market moving from an impulsive advance into consolidation rather than signalling an outright trend reversal.
So although the longer-term uptrend is still intact, short-term momentum has clearly swung back towards CAD.
"We remain of the opinion that the recent slide in the CAD has based and is in the process of correcting. Our fair value model indicates the CAD still has some margin to strengthen," says Shaun Osborne, Chief FX Strategist at Scotiabank.
Scotiabank notes a positioning unwind of a significant short bet against CAD could also offer some tailwinds: CFTC data show combined net CAD shorts from speculative, institutional and hedge fund accounts reached $25BN in the latest week's data.
"That is a little more than peak CAD bearishness seen in 2025 but a bit below the peak seen in 2024," says Osborne.
"The CAD could get some additional tailwinds from short-covering demand," he adds.
Scotiabank's research shows net CAD shorting activity is at an extreme and "that has been a reliable indicator of a CAD bottom in the past few years."
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