More Pound / Canadian Dollar Exchange Rate Weakness Likely, 1.55 Possible
The GBP to CAD exchange rate is edging off recent lows but it is too soon to discount a retest of the 2016 low at 1.5610.
GBP/CAD is quoted at 1.6009 at the time of writing, it closed the previous week at 1.6015.
While the pair is off recent lows at 1.5933, if anything momentum appears to be increasing to the downside.
The long hammer which formed on the day of the flash crash would normally be expected to mark exhaustion, however, the pair has continued lower instead.
A break below the crash lows at 1.5640 would be bearish, indicating a continuation down to 1.5500 initially, because it is a significant round number, but then by a move down to the historically strong support line at 1.5260.
Alternatively, there is still a chance the pair could rotate and move higher, with a move above 1.6542 providing confirmation of a bullish recovery to 1.6950 just under the 50-day moving average.
There is an overall bias to the downside, according to Scotiabank’s FX Strategist Saun Osborne:
“The GBP is holding above the flash crash low but the GBP’s inability to recover back through the 1.66 area—post-June consolidation base as well as major, long-term retracement support—suggests risks are still tilted heavily to the downside.”
Further weakness would come from a break below 1.6040, which would open the way up for a retest of the new cycle lows between 1.56-58.
“The broader trend remains lower and trend momentum signals are bearishly aligned across a range of short and longer-term timeframes. This provides for a high degree of confidence that the GBP is heading lower and is subject to only limited, counter-trend correction risk. Look to sell modest GBP gains from here,” says Osborne.
If Brexit uncertainty continues then there is a risk that GBP/CAD will continue falling and potentially surpass the flash-crash lows.
Russia’s rare show of diplomatic aplomb in negotiating a supply cap with OPEC has given new wind to oil’s uptrend and most analysts see 60 dollars per barrel as achievable.
The Canadian Dollar remains heavily influenced by the commodity, which is a key contributor to Canada's export basket.
Therefore, the outlook for the loonie is positive.
On the surface this would appear a compelling case to bet on further GBP/CAD downside, however the risk for bears is that Serling may have bottomed and there can be no more maleficient Brexit news to push it lower.
That a hard-Brexit worst-case scenario has now been priced by Sterling is becoming prevalent.
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.
Data for the Canadian Dollar
The highlight for the Canadian Dollar in the Week Ahead is the Bank of Canada (BOC) monetary policy report, the BOC’s interest rate decision and the subsequent speech by the governor of the BOC Stephen Poloz.
On Friday Core Inflation data is released for September (previous result 0.0%) and Core Retail Sales in August, which will be looking to improve on the -0.1% in the previous month of August.
Data for the Pound
This is actually quite a busy week in terms of data for Sterling.
Whether markets actually take account of the figures is however debateable.
That said, it would be negligent if those watching the FX market were not aware of what is due Tuesday sees the release of September CPI, which showed a 0.6% rise previously on a year-on-year basis.
Employment data dominates on Wednesday, with Unemployment Rate forecast to remain at 4.9%, Average Earnings at 2.3%, and Claimant Count forecast to have risen by 3K.
Thursday sees the release of September Retail Sales which are expected to have grown by 0.3%.
