GBP/CAD Rate Forecast to Reach 1.6690 Target as "Gravitational Pull" Seen as Overpowering
It remains "hard, or impossible, for the GBP to escape from the gravitational pull of the bear forces aligning on the cross,” according to Shaun Osborne at Scotiabank.
Pound Sterling has lost ground against the Canadian Dollar for four consecutive days now, and is fast approaching the 2016 lows at 1.6690 set in the wake of the big EU referendum sell-off.
At the time of writing the pair is quoted at 1.6809 on the mid markets with international payment quotes being as low as 1.6231 at some banks. Independent quotes are seen between 1.6669 and 1.6551.
We would have to agree with those who are eyeing the 2016 lows as an obvious target at which support may be eventually be found.
The GBP/CAD charts are showing a continued breakdown in the GBP/CAD pair, mirroring the negative fundamental backdrop which sees the quantitative easing programme at the Bank of England getting underway.
From a purely technical perspective the pair has broken down through a key up-trend line and is currently trading at 1.6971 at the time of writing, retaining a short-term bearish tenor:
The move lower is in line with the medium-term down-trend - a further factor supporting the pair’s decline.
We expect more downside to the next target at 1.6810 where the S1 monthly pivot (1.6806 to be precise) is situated and likely to resist further declines, at least temporarily.
A further break below S1 and 1.6750 would probably lead to a move down to a retouch of the 1.6682 lows.
Scotiabank’s FX Strategist Shaun Osborne also has a bearish outlook for the pair:
“GBPCAD remains vulnerable to a deeper push lower. Marginal losses today below support at 1.7050 have been accompanied by a pick-up in bear trend strength on the daily studies. The shorter-term trend oscillators are aligning with the longer-term studies—which will make it hard, or impossible, for the GBP to escape from the gravitational pull of the bear forces aligning on the cross.”
Latest Pound / Canadian Dollar Exchange Rates
  | Live: 1.8599▼ -0.01%12 Month Best:1.8915 |
*Your Bank's Retail Rate
| 1.7966 - 1.8041 |
**Independent Specialist | 1.8338 - 1.8413 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
USD/CAD is also falling - perhaps more surprisingly - given the recent contrast in employment data, which showed the US adding over a quarter of a million jobs to the economy IN July and Canada actually losing 31k jobs in the same period.
However, the weakness in the US dollar appears to be due to falling expectations of the Fed bringing forward the time for a rate rise to September, even though the labour market is showing signs of resilience.
The FX team at Lloyds Commercial Banking expect USD/CAD to rise due to, “Consensus expectations that crude oil prices will move higher by year end.”
Which, they argue, will lead to a cutting back of USD gains.
Shaun Osborne agrees on balance, arguing that the short-term up-trend in USD/CAD remains intact.
“Our conviction on the USD bull story will be tested by a deeper—and more sustained—push under 1.30 we rather think the 1.30 zone should hold and we continue to feel that medium-term risks are tilted towards a retest of 1.35 rather than a drop to 1.25.” He concludes.
As far as EUR/CAD goes, the chart looks similar to EUR/USD in its lack of directionality.
Scotia’s Osborne comments that three consecutive days of the pair going in no particular direction, “are not especially helpful in determining the near-term direction for the market.”
However, the FX strategists takes his cue from the exchange rates failed attempt to break above the key 200-day moving average and spectacular pull-back down following the unsuccessful test.
This suggests bears are in control and the rate is more likely to experience more downside, with the 200-day fall-back putting, “ the cross on track for a return to the 1.41/1.42 area in the weeks ahead
Longer-term, however, he sees a bullish recover for the euro, taking the rate back up to 1.47/8.
