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The British pound looks set for further losses against the Canadian dollar in the near term, with losses potentially accelerating on any positive developments in the U.S.-Canada trade war.
The pound-to-Canadian dollar exchange rate is lower on the day Canada's retaliatory tariffs on hundreds of American products took effect, an escalation that on the usual reading should have weakened the Canadian dollar and lifted this exchange rate.
Those negatives look to be fully accounted for by FX markets; GBP/CAD trades at 1.8676 on Tuesday, down 0.15%, beneath a 100-day moving average at 1.8715 that is acting as resistance.
Above: GBP/CAD daily chart. Image © Pound Sterling Live, chart created with TradingView.
The 100-day has come down onto the horizontal line we have drawn on our chart, which puts two forms of resistance at the same price.
Both short- and medium-term averages are sloping lower and the 100-day has arrived on a line that used to be support.
A level the market has broken tends to work as resistance from beneath, and an average reaching the same price reinforces that line, because the buyers watching a level the market has traded before and the sellers watching a trend measure are acting at the same number.
GBP/CAD opened Tuesday at 1.8702, tested 1.8714 and was turned back there, and it has since traded down to 1.8657. The rejection came on the line and on the average in the same session, which is the clearest evidence available that the band is working.
The 21-day at 1.8780 is falling faster than the 100-day and closing on it from above, so the two are converging and a crossover is a risk.
Beneath the market the chart carries nothing drawn on it until 1.8350, the floor from May. Above it the descending line from July's peak still caps the market near 1.8825, and the sequence of lower highs it describes has not been interrupted since.
Our Previous Call Was Right
A week ago we looked for the triangle to break lower, with 1.8711 the first objective and the support beneath it at 1.8597.
The break came; 1.8711 was reached inside the week and the decline ran on to roughly 1.8610 before the bounce arrived. Both halves of that call have now run, and the level we named as the first objective is the level capping the market this morning.
For now we look for the 1.8711 to 1.8715 band to hold as resistance and for the decline to extend. A daily close above the 21-day at 1.8780 would change that, and our Pound to Canadian Dollar forecast looks to 1.8350 beneath, a multi-week destination and not a target for the coming days.
The Trade War Premium Is Already in CAD's Price
CAD resilience flies in the face of ongoing U.S.-Canada trade tensions as Canada imposes retaliatory tariffs of 15% to 50% on hundreds of US products today, including steel at 50%.
"Canada-US trade tensions have escalated further," say economists at Commonwealth Bank in a daily FX note.
On the other side, President Trump separately threatened to bar Canadian Bombardier jets from the US market.
"Canada has more to lose from a prolonged trade dispute with the US. But Canada does have some leverage because the US remains heavily reliant on Canadian energy. Trade tensions present a modest upside risk to USD/CAD," says Commonwealth Bank.
The rule of thumb on a trade dispute is that the smaller and more exposed economy's currency weakens, because tariffs threaten its exports, then its growth, then its central bank's room to hold rates where they are.
That is the reading behind the modest upside risk CBA see in USD/CAD, and a weaker Canadian dollar on that path would lift this exchange rate.
However, with the negatives in the price, we think it's increasingly obvious that risk-reward increasingly favours CAD upside on any resolution to the trade impasse.
Our Pound-to-Canadian Dollar forecast rests on the chart and the news flow agreeing for once: the averages point lower, the 100-day has arrived on the line the market lost, and a trade war escalating in the open on Tuesday morning was not enough to lift this exchange rate off it.
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