The GBP to CAD exchange rate has once again appeared to have met a barrier in the form of the 100 day moving average.
The British Pound has turned lower against its major competitors as some of the gains made over the previous week are partially reversed with profit-taking on the stellar move being seen.
Sterling was the best performer on the G10 leaderboard in the week ending November 11th and some retracement should be expected after the stellar gains.
Technically, GBP/CAD has risen strongly, breaking above several key levels, including the 50-day moving average, and the lower borderline of a trend channel:
We see more gains now as likely, due to the strong long green up bars posted by price action and the occurrence of two bullish Japanese candlestick patterns in close proximity to one another - a bullish engulfing and three outside up pattern - over the last few sessions.
The only caveat to the bullish outlook is the strong ceiling of resistance the pair has just met, which could see a pull-back before more gains evolve.
The 100-day moving average is a serious impediment to upside progress, according to Scotiabank's strategist Shaun Osborne, but once the pair clears it – potentially by moving above the 1.7250 level - further gains are likely, with the next target near the upper trend channel at 1.7450:
"GBPCAD is quiet consolidating around its 100 day MA, the level representing clear resistance through much of 2016. GBPCAD’s momentum signals are bullish, DMI’s are providing confirmation, and short-term MA’s are aligned in a bullish manner. We await a resolution to the near-term consolidation and note the potential for gains toward the mid-September highs above 1.75," says Osborne.
The Pound has come out relatively well from the great event risk of November the US Presidential election, due to Trump’s pre-election promise that he would put the UK at the front of the queue in any new free trade negotiations.
The Canadian Dollar meanwhile has fared less well as a result of fears it will struggle as a result of the US pulling up the drawbridge due to Trump's protectionist anti-import stance.
Until we hear more from Trump about these two subjects directionality can only be guessed at.
Data for the Pound and Canadian Dollar in the Coming Five Days
There is little data to focus on until we get Tuesday’s October inflation data for the UK and then the equivalent report for Canada, on Friday.
Higher UK inflation expectations are currently favouring the Pound and more upside for the pair, so a continuation of that trend will result in more upside for the pair.
Inflation tends to indicate a likelihood that a country’s central bank will increase interest rates, and higher rates tend to attract more capital flows driving a currency higher.
The main release for the Canadian Dollar is Core CPI, on November 18, at 13.30 (GMT), which is expected to rise by 0.3% mom in October.
Concerns about an economic slowdown and a fall in inflation have led to increased expectations the Bank of Canada (BOC) could cut interest rates, or use some other form of monetary stimulus method to support growth and inflation.
Such a move would weaken the Canadian Dollar, so if inflation is shown to have fallen in October, we could see more Loonie selling.
Data for the Pound
The main release for the Pound in the coming week is CPI (yoy) which is forecast to rise 1.1% in October (from 1.0% previously) and is published at 9.30 on Tuesday, November 15.
Inflation already showed a strong 1.0% rise in September and if it continues to increase it will probably lead to an appreciation in Sterling as it will lessen the probabilities of the Bank of England (BOE) cutting interest rates in December
Average Earnings on Wednesday may also be significant as an indicator of inflation pressures.
A rise of 2.4% in wages (excluding Bonuses) is forecast in the data from September.
The data is released along with the Unemployment Rate and Claimant Count (expected to show a rise of 2k jobs) on Wednesday, November 15 at 9.30.
The week rounds off with Retail Sales on Thursday at 9.30.
The data for October is expected to show a 0.5% rise mom.