- GBP/CAD expected to reverse and start going higher again this week
- Main event for the Canadian Dollar is the release of labour market data on Friday
- PMI business surveys dominate the economic calendar for Sterling
© Andrey Popov, Adobe Stock
The Pound has steadily lost value against the Canadian Dollar since our last week-ahead forecast; at the start of this new week 1 Pound could buy 1.8221 Canadian Dollars on the inter-bank markets, having fallen to only 1.8072 at Friday's close.
Nevertheless, our technical studies of this particular market confirm Sterling appears to be favoured against the Canadian Dollar, and GBP/CAD is rising in a strong bullish trend which is overall likely to extend in the future.
The pair recently broke above several key levels including the 200-week MA and the May highs and the fact it managed to do so relatively easily is testament to the strength of the uptrend.
The current spell of weakness, therefore, is probably only a temporary pull-back before the dominant uptrend starts again.
The uptrend may soon resume as it has just fallen to the 200-week MA (see above) which will probably provide a base of support for a recovery because major moving averages are dynamic levels of support and resistance which often lead to pull-backs, bounces, and reversals.
We see a strong chance of a recovery beginning although ideally would prefer to see a break above the previous 1.8416 highs for confirmation, with an upside target then at 1.8500, which is a major round-number and history suggests a place where many buyers will take profit.
Data and Events to Watch for the Canadian Dollar
The main release for the Canadian Dollar in the week ahead is Canadian Employment data out on Friday, April 6 at 13.30 GMT.
The economy is expected to have added 20.3k new jobs in March compared to the 15.4k registered in February.
The Unemployment Rate is forecast to remain unchanged at 5.8%.
Employment data is significant because it is an indicator of inflationary pressures, and higher inflation leads to higher interest rates which lead to a stronger currency.
The Trade Balance for February is also out in the week ahead and is forecast to show a deficit of -2.1bn CAD, which compares to -1.91bn previously. Generally, the wider the deficit becomes the more it weakens the currency.
Data and Events to Watch for the Pound
The main releases in the week ahead for Pound Sterling are the PMI (Purchasing Manager Index) business surveys, which provide a timely and reliable gauge of levels of activity and growth in various different industry sectors.
"The PMI for Britain are expected to be down across the board. That would be a fairly negative combination," says Marshall Gittler, chief currency strategist at ACLS Global, in relation to the expected impact on Sterling.
Although Manufacturing PMI has been falling for a while both the construction and service-sector PMIs were up last month which provided a counter-weight to the negative Manufacturing data, however, "that’s not expected to happen this month. As a result, the figures could be negative for the pound," says Gittler.
Ryan Djajasaputra an analyst at Investec, says:
"We suspect that the wintery weather during the month may have had an impact and are forecasting a two-point fall in the services PMI to 52.5 and a more modest half a point drop in the manufacturing PMI to 54.7."
Manufacturing PMI is out at 9.30 on Tuesday, April 3, and is forecast to slide to 54.8 from 55.2; Services is out at 9.30 on Thursday, April 5, and is forecast to fall to 54.2 from 54.5; and Construction at the same time on Wednesday and is forecast to decline to 51.2 from 51.4.
To round off the week there is a speech from Bank of England (BOE) governor Mark Carney at 16.15, which is significant as it may hint at whether the BOE still intends to raise interest rates in May as the market currently expects.
An interest rate hike would lift the Pound by supporting inflows of capital from investors seeking somewhere profitable to park their money.
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