The intact uptrend in GBP/CAD should extend over the coming five days, although technicals are weakening.
Pound Sterling starts the new week at 1.6632, lower than the previous week's close of 1.6682.
The previous week's decline from an open at 1.7023 to 1.6682 brings to an end a run of four consecutive weeks of decline for the pair.
A reduced growth outlook due to systemic economic factors, low commodity prices and the threat of US trade tariffs has darkened the outlook for the Canadian Dollar.
Nevertheless, from a technical perspective the currency has held up reasonably well.
Due to subdued data for the Loonie the outlook for GBP/CAD may depend more on the pound, which could see volatility from the Chancellor’s Autumn Statement on Wednesday.
Technical Outlook for GBP/CAD
The pair has weakened after pulling back down to the trendline for the move up from the October lows
Nevertheless, despite this, the uptrend remains intact and is expected to resume eventually.
A move above the 1.7127 highs would probably confirm an extension up to a target at the monthly pivot (R2) at 1.7200.
Monthly pivots are levels watched by traders where prices often pause or rebound.
They are often used as areas in which to ‘fade the trend’, which means placing orders which are counter to the dominant directional bias in expectation that when prices touch the pivot they will rebound.
Support from Trendline
The exchange rate is currently resting on support from the trendline from the October lows.
It is the second test of the trendline after the attempt to break lower at 1.64 failed and the pair continued its trend higher.
We cannot ignore the possibility of a break, which would be confirmed by a move below 1.6600.
Such a move would be expected to extend the same distance lower as the height of the wave of price action prior to the break, see (a-b = c-d on chart).
This would suggest a move down to support from the central monthly pivot (PP) at 1.6350.
Traders looking for more confirmation of a downside break might also want to see the MACD indicator in the bottom pane either crossing its signal line (red) or crossing below the zero-line for added bearish confirmation.
Corrective not Impulsive
That more downside could be on the cards seems to the conclusion of Scotiabank’s FX strategist Saun Osborne.
The recovery from the October lows is probably merely a correction of the downtrend and is unlikely to be sustainable argues Osborne.
“It is notable that the GBP rebound has not made a new cycle high in this recovery, however, which suggests that the move up in the past few weeks has been corrective and that the broader trend lower remains intact,” said Scotia’s strategist.
Data for the Canadian Dollar This Week
From a data perspective, the highlight of the week for the Canadian Dollar is Retail Sales in September which is released on Tuesday, November 22 at 13.30 (GMT).
Retails Sales is forecast to rise 0.6% mom from a previous -0.1%.
Analysts will be closely watching the data to gauge Canadian economic growth which has been undershooting forecasts recently.
Data for the Pound This Week
The main event for Sterling will be the Chancellor’s Autumn Statement on Wednesday, November 23.
Markets will be focused on the amount of fiscal stimulus the government is willing to spend, which if substantially higher is likely to support the pound as it will take the pressure off the Bank of England to print money and use that as stimulus instead.
Talk of stimulus may have been hyped as an admission of ‘outright loosening’ now seems unlikely, according to Capital Economics’ Paul Hollingsworth:
“All eyes are now on the Chancellor, who delivers his first fiscal set piece with the Autumn Statement on Wednesday.
“He will be constrained somewhat by recent poor borrowing numbers and a disappointing set of economic forecasts.
“Accordingly, we expect fiscal policy to be less tight than the current plans, rather than providing an outright loosening.”
Hammond has said the Government remains constrained by the country's huge debt pile and with economic growth remaining robust he will most likely opt for a conservative budget.
Expectations for a Trump-style fiscal boost are therefore likely to be misplaced.
In all, this should be a business-as-usual budget from a Pound Sterling perspective.
The government’s latest borrowing figures out in Tuesday, November 22 – the day before the budget - could provide a hint as to how generous Chancellor Hammond is willing to be.
Economists estimate a rise of 5.6bn borrowing in Net Borrowing by the government in October, from a previous 10.1bn.
A rise much above that will probably weigh on sterling as it will reduce the Chancellor’s stomach to open up Treasury.
Other data includes Q3 GDP on Friday. November 25 at 9.30 (GMT).
Preliminary estimates had it at a healthy 0.5% QoQ and unless the second estimate seriously disappoints we are unlikely to see much movement from this release.
Tuesday, November 22 sees the release of survey data from the Consortium of British Industry November.