50 Day Moving Average Slaps Down Pound / Canadian Dollar's Advance
The British Pound's advance against the Canadian Dollar was capped, quite convincingly, by a downward sloping 50 day moving average which offers some clues on future direction in the pair.
The Pound to Canadian Dollar exchange rate ended the week at 1.7087, having opened the week at 1.6836.
So this is the second consecutive weekly advance for GBP/CAD.
We note that the exchange rate would have closed lower were it not for the remarkable selling interets that picked up when the rate reached the 50 day moving average on the daily charts:
Above: The downward sloping 50 day moving average - the grey line - has kept GBP/CAD strength in check over recent days. Picture: IG.com, PoundSterlingLive.com
Therfore, next week's trade could well be defined by the pair's ability to break above this level.
Were the break to happen, we could well see the Pound make a run for a third consecutive weekly advance.
If selling pressure remains heavy at the 50 day M.A then a move lower is likely as the M.A is of course pointed down.
Growing Uncertainty for GBP/CAD
Meanwhile, studies by my colleague Joaquin Monfort made mid-week suggest that while GBP/CAD should move higher, there are some worrying technical developments to keep in mind.
The charts show that GBP/CAD has now broken above the downward pointing trend-line that has been imposed by the Brexit sell-off - and this is a big positive.
The only cause for concern is the way the exchange rate is trying to breakout from its rising channel on the four-hour chart shown below:
Added to this is the bearish cross on the MACD indicator in the lower pane, also signalling the potential for more downside.
A break below the lower border of the channel would probably usher in more downside as it would constitute and important break lower, however, the S2 monthly pivot is providing a tough barrier to mare downside at 1.7028, and only a break below the 1.6975 would confirm a clear breakout lower.
Scotiabank’s Shaun Osborne suggests the narrowing daily ranges is a sign of growing uncertainty.
“GBPCAD’s inside (day) range hints to uncertainty following a steady rally off the mid-August low with near-term consolidation around the mid-1.70s at levels that roughly coincide with the 21 and 40 day MA’s as well as the August 4 close.”
He further adds how the bullish weekly chart setup supports a more bullish prognosis eventually:
“The weekly candle pattern is bullish as GBPCAD appears set to complete a three candle bullish morning star reversal formation.”
Latest Pound / Canadian Dollar Exchange Rates
  | Live: 1.8417▼ -0.09%12 Month Best:1.8915 |
*Your Bank's Retail Rate
| 1.7791 - 1.7864 |
**Independent Specialist | 1.8159 - 1.8233 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Indeed our own preference is for forecasting a continuation of a young up-trend higher, with a break above the current 1.7160 highs leading to a move up to 1.7250.
Poor recent data employment and growth data from Canada combined with uncertainty over the future course of oil prices appear to be restraining CAD and allowing the pound to recover.
A string of not-as-bad-as-thought data releases from the UK for the period after Brexit helped support he pound in the last week and a half.
It now seems possible the UK economy is not as badly damaged as thought, at least for now, although tomorrow’s Business Investment data for Q2 is likely to show more sensitivity to the uncertainty caused by the referendum, although it is for the second quarter and so only covers the period in the run up to Brexit (and one week after) so is only reflective of the period prior, although uncertainty is likely to have been high even then as the outcome was not known.
