Pound-to-Canadian Dollar Rate Week Ahead Forecast: 2018 Lows, Downtrend Tipped to Extend
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- GBP/CAD falls to key lows as bear trend accelerates
- Possibility of range trading before more downside
- Pound to be moved by PMI data; Canadian Dollar by OPEC
The GBP/CAD exchange rate is trading at around 1.6813 after falling over two cents from the week before, and studies of the charts are showing the entrenched trend lower is likely to extend over the next few days.
The 4-hour chart shows the pair having just fallen to the 2018 lows at 1.6610 and we see a strong chance it may bounce from here and start going sideways in a range, with a ceiling at 1.6850.
Nevertheless, GBP/CAD is in a strong downtrend which is likely to continue eventually and a break below the 2018 lows, confirmed by a move below the 1.6550 level would probably lead to a continuation down to the next target at 1.6400.
The 4-hour chart is used to determine the short-term outlook, which includes the coming week or next 5 days.
The daily chart shows the pair in an established downtrend which is expected to continue given the old adage ‘the trend is your friend’.
The pair has just reached the 2018 lows and initially, it could go sideways for a while, especially because the RSI momentum indicator has been forming a multiple bottom low which is suggestive of more upside.
The daily chart is used to determine the short-term outlook, which includes the next week to month ahead.
The weekly chart is showing the possibility of a bearish continuation down to a potential downside target at 1.6000 in the long-term.
The pair may have formed an ABCD Gartley pattern since rolling over at the March highs. If so, the final C-D leg is probably currently unfolding and will lead to an extension down to an even lower downside target in the following months.
The weekly chart is used to determine the short-term outlook, which includes the next 1-3 months.
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The Canadian Dollar: What to Watch this Week
The main fundamental drivers on the horizon for the Canadian Dollar are likely to be the up-and-coming OPEC meeting and labour market data.
Oil prices have reversed and started climbing as a result of Middle East tensions and higher-than-expected inventory draws. In the week ahead the OPEC meeting on Monday is expected to lead to a further tightening in production quotas and potentially higher prices. This would help support the Canadian Dollar we believe, as oil is a significant foreign exchange earner for the country.
“It will be a pivotal week for the oil market too...when OPEC and its allies meet on Monday and Tuesday. The main question is whether these producers will extend their output cuts, and if so, for how long,” says Raffi Boyadijian, an economist at XM.com. “Judging by recent comments from the various energy ministers, a 6-month extension seems like a near certainty. This implies that for oil prices to rise materially from here, the cartel needs to deliver something over and above what markets already expect, for instance, a one-year extension or deeper production cuts – or both.”
Canadian economic data has been quite strong recently supporting the Loonie and reducing the probability of a rate cut in the future.
Given most central banks in the G10 are cutting rates this gives the Loonie a distinct rate advantage over its counterparts.
“With Canada’s birthday just around the corner, we were treated to early birthday presents in the form of healthy April GDP and decent results from the Bank of Canada’s Business Outlook Survey (BOS),” says Canadian investment bank TD Securities of recent data.
Canadian labour market data is the next major release and is forecast to show a 5.0k rise in payrolls and a 5.5% unemployment rate when data is released for June on Friday, June 5 at 13.30 BST.
Strong labour market data would help support the outlook for the economy and likely prompt further Canadian Dollar strength.
The Pound: What to Watch this Week
The main releases for the Pound are services, manufacturing and construction PMIs for the month of June. These are surveys of purchasing managers in key sectors and come out at the start of every new month.
They provide a gauge of the level of activity and confidence in the sector. They are seen as a reliable forward indicator of economic growth.
The Manufacturing PMI is forecast to show a rise to 49.5 in June, when it is released on Monday, June 31 at 09.30 BST. This would still continue a worrying contraction in the sector since it would be below the 50 threshold, distinguishing expansion from contraction.
The Services PMI is expected to show no change at 51.0 in June when it is released at 9.30 on Wednesday.
The Construction PMI is forecast to show a rise to 49.4 from 48.6 in June when it is released at 9.30 on Tuesday.
A lower-than-expected reading would probably result in a decline in the Pound and vice versa for a higher-than-expected result.
The Conservative party leadership race is likely to have less of an impact on Sterling in the coming week.
The final vote on who will get the job will not take place until mid-July, with the new leader named on July 23. Apart from that, there is a debate on ITV on July 9.
Boris Johnson is still the bookies favourite with 1/7 (87.7%) odds according to Oddschecker. He is the 'harder' Brexiteer of the two by doggedly adhering to the October 31 deadline ‘come what may’. If his popularity should wane it would boost the Pound, but we doubt Johnson will be threatened by Jeremy Hunt.
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