-GBP/CAD: Established downtrend set to continue this week.
-GBP/CAD: Trend could take exchange rate to 1.65 this week.
-GBP Eyes Bank of England testimony, CAD the Bank of Canada.
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The Pound-to-Canadian-Dollar rate has been in a downtrend since striking a 1.84 high back in March 2018 and is likely to remain under pressure during the week ahead.
The pair has fallen by nearly 10%, to a low of 1.6650 last week, during recent months as the tables have turned on both the Pound and Canadian Dollar. The big question now is how much lower is the exchange rate likely to go?
One possible way of answering this question is to interpret the move down as a three-wave symmetrical pattern, such as an abc correction.
These often have legs of similar proportions such that it is possible to forecast how long the final leg C will be. In this case you get a target down in the 1.64 region, which suggests the bear trend still has further to go.
Above: Pound-to-Canadian-Dollar rate shown at weekly intervals.
The 4-hour chart shows a close-up of the bear trend and how it appears to be resuming after the pair rose to the 50-period moving average. This comes despite the pull-back on Wednesday and Thursday.
Above: Pound-to-Canadian-Dollar rate shown at 4 hour intervals.
A break below the 1.6595 lows would confirm a continuation lower to a target of 1.6500, which may attract profit taking.
The Pound: What to Watch
The main event for the Pound in the week ahead will be testimony from Bank of England (BOE) governor Mark Carney the Parliamentary Treasury Select Committee, on Wednesday, August 22, covering the inflation and economic outlook.
Although the BOE raised interest rates at the start of August, the chances of a further hike in the short term are generally viewed as low mainly given the increasing uncertainty around Brexit. Carney recently said the chances of a 'no-deal' Brexit were "uncomfortably high" and that this presents a risk to the economy.
The Pound is highly correlated with interest rates because of their influence over foreign capital inflows. Higher rates tend to attract greater inflows of capital, which raises demand for Sterling. Therefore, traders will be analysing Carney's statements for clues on when rates might change again, even if more clarity is unlikely.
The other major release for the Pound is the Confederation of British Industry (CBI) Industrial Trends report for August, with overall activity balance forecast to decline from 11.0 to 10.0 when the report is released on Tuesday, August 21 at 11.00 B.S.T.
CBI surveys are often closely followed by the market due to their timeliness and can provide early insight into activity within the economy.
The Canadian Dollar: What to Watch
The most important release in the week ahead for the Canadian Dollar is retail sales data for June, which is forecast to reveal a 0.3% increase in sales and a 0.1% increase when car sales are removed from the numbers.
The data are due to be released at 13:30 London time on Wednesday. Canadian data has been very good recently, which could mean a better-than-forecast result is more likely than normal. This would boost the Canadian Dollar.
"From a fundamental point of view, the data run in Canada is still being underplayed, we think–data surprises have run consistently positive relative to the US data prints since July, the more so following today’s reports (which included a huge jump in International Securities Transactions data)," says Shaun Osborne, chief FX strategist at Scotiabank.
Another event of note is a speech from Bank of Canada (BOC) rate setter Carolyn Wilkins on Monday at 14.15. Although the market is expecting one more 0.25% rate rise from the BOC in 2018, some optimistic analysts say two hikes are also possible given the recent run of strong data. If Wilkins also hints that a second rise is possible, it would support the Loonie.
One major headwind for the Canadian Dollar, however, are growing trade tensions between the US and China as well as geopolitical tensions between the US, Turkey and Iran. These are negative for commodity prices and Canada's economy is heavily reliant on oil exports.
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