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The Pound to Canadian Dollar is Probing Trendline for Upside Break in Week Ahead

 

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The GBP to CAD exchange rate is seen at 1.6454 at the start of the new week amidst a broadly positive environment for Pound Sterling.

We have witnessed the exchange rate consolidate over recent weeks and are now waiting for a big directional move, as is often the outcome when a market has been trending in a sideways pattern as has GBP/CAD.

We look to the weekly chart form inspiration on the Pound to Canadian Dollar exchange rate, which has just broken above a key long-term trendline in a bullish move higher.

GBPCADMar05b

The pair has also formed a possible double bottom reversal pattern at the lows which could signal the start of a new uptrend on the horizon. Further we see that MACD is steadily rising, showing resilient momentum which is a sign the exchange rate could be about to break higher.

Further, we see that MACD is steadily rising, showing resilient momentum which is a sign the exchange rate could be about to break higher.

The configuration which has formed over the most recent weeks could also be interpreted as a bullish flag, which upside potential to about the 1.7000 level, if the flag highs at 1.6643 are pierced.

GBPCADMar05

Longer-term and a break above the neckline of the double bottom, situated at the top of the intervening 1.7127 peak would signal a probable move up to 1.8000, calculated by extrapolating the height of the pattern from the neckline higher.

At the time of writing GBP/CAD is quoted at 1.6455 on the inter-bank market with your bank likely to offer an exchange rate around 1.60-1.6050 for international payments on the 10K-50K marker with the rate becoming more generous on +100K. Independent provider RationalFX is seen quoting towards 1.63 for the same 10K-50K marker with similar savings offered on the +100K region. Find out why.

Data, Events to Watch for the Canadian Dollar

The big release for the Canadian Dollar (Loonie) in the week ahead will be on Friday when labour statistics for February are released at 13.30 GMT, the same times as Non-Farm Payrolls are released in the US.

Analysts currently expect Employment Change to fall by -2.5k and the Unemployment Rate to remain steady at 6.8%.

This will be a key release given the recent dovish reorientation of the Bank of Canada (BOC) who are in danger of shifting to an easing bias, which means they could cut interest rates.

Uncertainty as to the trade relationship with the US which accounts for 74% of their Exports, in the era of ‘Trumpectionism’, is the underlying concern keeping the BOC  defensive, but domestic woes would heap on the pressure.

Tuesday sees other tier one data with the IVY Business PMI, at 15.00, a broadbased purchasing manager survey, and the Canadian Trade Balance for January at 13.30, which is forecast to show a slight pullback to 0.75bn.

Data to Watch Between March 06 - 10

News that the Chancellor may be increasing taxes in his Budget on Wednesday, March 8, may weigh on the Pound if the measures are seen as inhibiting growth and consumption.

Fiscal tightening would stand in contrast to the policies being implemented in the US by Donald Trump's administration, for example, who are expected to cut taxes and spend more on infrastructure.

On Tuesday, March 7 there is the release of tier two data for the Pound in the form of the Retail Sales Monitor from the British Retail Consortium (BRC).

It is a survey rather than a hard data release but sentiment indicators are still often quite reliable indicators of future activity.

The monitor, out at 00.01 (GMT) is expected to show a 0.2% rise in February from the -0.6% decline in Jan.

Overall, recent UK data has been described as soft, and this combined with the resurfacing of fresh Brexit risks relating to calls for a Scottish referendum are have been weighing on Sterling.

Currently the market is of the opinion that the related uncertainty caused by Scotland is negative for Sterling so more losses may be on the horizon as the narrative unfolds. There is talk that the Scottish Nationalists may call for a referendum as the UK triggers Article 50.

“Sterling fell hard this week as data took a turn for the worse. After a month of very narrow trading ranges, sterling finally broke down on the heels of softer data. Aside from slower service-sector activity, manufacturing activity also eased in February and between the stronger U.S. dollar, Scotland pushing for another referendum vote and Brexit's Article 50 later this month, it was only a matter of time before the bottom underneath Sterling fell out. Now that support has been broken, we anticipate further losses in GBP,” says Managing Director of BK Asset Management, Kathy Lien in a recent note seen by Pound Sterling Live.

Budget is Key Political Event

UK politics are this week dominated by the UK budget on Wednesday when the Chancellor lays out his spending and taxation plans as the country heads for Brexit negotiations.

What could be quite Pound-poisitive would be an opening of the purse-strings and an intent to increase spending and cut taxes.

This is of course highly unlikely as Chancellor Hammond is a fiscal conservative and while some give-aways will be announced they will be modest.

The surprise would be a notable expansion in spending in anticipation of an economic slowdown relating to Brexit.

However, the economy's resillience suggests the Chancellor would rather head into the unknown with a 'war chest' of savings should activity take a dip in coming years.

 

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