The Pound-to-Canadian-Dollar Rate in the Week Ahead: Reversing Lower From Top of Channel

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- GBP/CAD weakens at top of channel

- It's possible a trend reversal is underway

- Brexit main factor for GBP as CAD eyes jobs data

The Pound-to-Canadian-Dollar rate was trading at 1.7436  Monday after falling over nearly two percent in the previous week, although studies of the charts suggest more losses could be just around the corner. 

Sterling fell last week amid heightened uncertainty over Brexit, after Prime Minister Theresa May failed in her third attempt to get the EU Withdrawal Agreement approved in the House of Commons. 

There is now a risk of the UK leaving the EU without a deal on April 12, which would be negative for the Pound. But there is also some prospect of another Brexit referendum or a general election being called in the coming weeks, which could be positive for Sterling if markets see it creating scope for Brexit to be abandoned.

Downside in the Pound-to-Canadian-Dollar rate was reinforced last week by a stronger Loonie, which was buoyed on Friday by unexpectedly strong GDP data for January. 

Above: GBP/CAD rate shown at weekly intervals, with rising trend channel highlighted.

From a technical perspective the outlook for GBP/CAD has turned bearish. The pair broke out of the top of the rising channel in March and touched the 200-week moving average (MA) but this increasingly began to look in recent weeks like it was an exhaustion move. Last weeks price action suggests this was indeed an exhaustion move.

In addition, a bearish topping pattern has now formed on the daily chart, which is also indicative of further losses to come. The recent break below the neckline in the 1.74 area strongly suggests more downside on the horizon, which could potentially see the market fall to 1.7200.  

Above: GBP/CAD rate shown at daily intervals.

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The Canadian Dollar: What to Watch

Then main event in the week ahead for the Canadian Dollar will be jobs data for the month of March, which is due out at 13:30 Friday, although a speech by Bank of Canada (BOC) governor Stephen Poloz will also garner attention from the market. 

Employment data is expected to show payrolls falling by 10k in March but the overall unemployment rate remaining steady at 5.8%, when it is released at 11.30 GMT on Friday. 

Poloz will address an audience at the Nunavut Mining Symposium at 19:55 Monday London time on Monday evening. Markets will watch to see whether he comments on the recent GDP result and whether it will impact on BoC interest rates policy.

As recently as October, the BoC said Canadian interest rates would have to go all the way up to the so-called neutral level over the coming quarters, which is estimated to be between 2.5% and 3.5%, from 1.75% currently. 

However, signs of a sharp slowdown in Canadian as well as global economic growth led the bank to backtrack in January, when it said it would be even slower to lift rates this year than it was back in 2018 when policymakers hiked three times. 

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The Pound: What to Watch

The main event in the week ahead for Pound Sterling will be the opening of a new chapter in the Brexit saga, with markets now focused on April 12 as the new deadline by which the UK's withdrawal must be formally agreed.

Prime Minister Theresa May now faces as choice between pursuing a so-called no deal Brexit, and requesting from the EU another extension of the Article 50 negotiating window that will almost certainly require participation in the EU parliament elections. 

There is still no one path ahead that can command a majority in the House of Commons, although MPs who've been attempting to sieze control of the Brexit process from the government will get another chance on Monday to force the government into pursuing a future relationship model they find more palatable. 

Some of the ideas put forward by members of parliament include a "permanent customs union", the revocation of Article 50 and another referendum among others. All of those options are likely to meet fierce resistance from the minority of Brexit-supporters in parliament, while also being electorally controversial.

There is also a possibility Theresa May could try to hold a fourth vote on her withdrawal agreement although it remains to be seen whether or not she can win it. 

Apart from Brexit drama, the March IHS Markit PMI surveys will also be released, although they are unlikely to have much impact on Sterling given the market's unrelenting focus on Brexit.

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