The GBP/CAD is showing a downside bias although a major hurdle is preventing follow-through.
One major hurdle stands in the way of more losses for the Pound to Canadian Dollar, and that is the 50-day moving average (MA) at 1.6575.
Moving averages are not just indicators of long-term value - they also act as physical barriers to price.
On GBP/CAD, the 50-day is currently supporting the exchange rate and preventing more downside.
But if the exchange rate can clearly break below the 50-day MA we see the evolution of more downside as probable.
Such a break would be confirmed by a move below 1.6550 to a target at 1.6400.
The MACD indicator is crossing bearishly below its signal line, further supporting the possibility of more downside.
Scotiabank’s Shaun Osborne is also bearish the pair, saying:
“But price action this week suggests rejection there (at the 1.69 highs) and weakness below the base of the Oct-Dec consolidation—and, more especially, the 40-day MA—means a renewed push lower may be unfolding now. A push under 1.6575 (November low) should see losses extend,” said Osborne.
Data for the Canadian Dollar
It is a quiet week for the Canadian dollar with the first release Manufacturing Sales in October, which is out on Thursday, December 15 at 13.30 (GMT), and is expected to show a 0.3% rise mom.
According to TD Securities, the Bank of Canada’s (BOC’s) Financial Stability Review at 3.30 on Thursday 15 is likely to provide insights on the housing market and the climate of international interest rates, which could affect expectations – a Press Conference follows the review.
The finishes with Foreign Securities Purchases in October, out at 13.30 on Friday December 16.
The Pound: Inflation and the Bank of England
The Bank of England (BOE) interest rate meeting on Thursday, December 14 at 12.00 (GMT) is the main economic data event in the week ahead, and although no change of policy is expected the minutes, released immediately afterwards, could be instructive in showing members thinking on future policy.
Whether the Bank will raise or lower rates in the future will impact on Sterling and the decision as to whether to move rates higher or lower will likely rest on future inflation levels.
The Pound has been following UK Gilt yields higher of late as markets price in more agressive inflation over coming years.
With this in mind, UK inflation will be brought under the spotlight on Tuesday, December 13 when November CPI is released at 09.30.
The annualised figure is forecast to read at 1.1%, up from the previous month's 0.9%.
A beat on this figure would prove beneficial to the Pound in that it would imply the Bank of England may have to raise interest rates at some point in the future in an attempt to keep inflation settled.
However, if the figure underwhelms then Sterling could struggle.
On Wednesday, December 14 at 09.30 the ONS release unemployment data, which is forecast to show a 4.8% unemployment rate (Oct), a 5k rise in the Claimant Count (Nov) and Average Earnings Including Bonuses (Oct) rising by 2.3%.
On Thursday, December 14 at 09.30 Retail Sales in November is released and expected to come out at 0.2% month-on-month.
If these data remain robust then Sterling should be able to enjoy the fundamental support required to keep its recent recovery move in place.