Pound / Canadian Dollar Rate Breaks Below Key 1.75 Lows, Threatens More Downside
The GBP into CAD conversion witnessed a break below the key lows set in the 1.75s following Brexit, ensuring an ominous looking top has formed for the pair.
The new week starts with fresh declines being seen in the sterling complex.
The falls have however been moderated by the first official appearance of the UK's finance minister, Chancellor of the Exchequer George Osborne.
Osborne has said, "let me clear you should not underestimate our resolve. We were prepared for the unexpected and we are equipped for whatever happens."
Osborne is not willing to rush into any detail though, wanting to see how the situation unfolds over coming days and weeks before changing tax and spending settings.
"It seems that George Osborne’s appearance this morning, his first since before the referendum results were announced, has somewhat calmed investors’ fears, the Chancellor joining many of his Tory colleagues in claiming there is no rush to trigger the dreaded Article 50 despite increasing pressure from Europe," says Connor Campbell at Spreadex in london.
Pound Still Above Friday Lows vs Canadian Dollar
The British pound was trading at 1.7507 versus the Canadian dollar on the first day of trade to the new week.
The pair remains above the Brexit-inspired low of 1.7252 suggesting we could be seeing some tentative form of short-term consolidation.
There are now fears the UK is headed for recession, something that should keep GBP under pressure over coming months.
The Brexit result has it ushered in countless uncertainties - from what a new trade agreement with Europe would look like, to whether Scotland would be having another referendum on independence or not.
Uncertainty is the bane of businesses who like to reduce risks wherever possible and the period ahead may lead to a slow-down in investment in the UK, and indeed across the globe as investors wait for more certainty before committing their money.
As a result, risky assets and commodities fared worse in trading on Friday in the aftermath of the referendum than safe-haven currencies and assets.
The Canadian dollar was itself hit, falling to 1.31 to the US dollar, which gained over 2.5% against a basket of currencies as investors made it one of their safe-havens of choice.
The currency also had to bear the brunt of declines in commodities, including a 4.5% decline in oil, which is highly correlated to the CAD since it is the country's chief export.
From a technical perspective the break below the 1.7540, 2012 monthly lows, no matter how temporarily, has strengthened the bearish case.
Despite looking overstretched to the downside, risks remain biased to yet more bearish price action, with a move below the 1.7255 lows confirming an extension down to 1.7000.
Scotiabank’s Shaun Osborne sees potential for downside as increasing now the exchange rate has breached the 1.81 handle:
“Weakness below 1.81 would, however, suggest deeper, longer-term downside risks towards 1.65/1.75. We can concede that the bear case for the GBP has weakened recently but the bull case is far from proven at this point.”
Upside is likely to be capped between 1.75-1.78 were the 2012 lows are situated and the S2 monthly pivot at 1.7824, which is likely to act as an obstacle to more upside given they tend to attract substantial amounts of counter-trend trading.
An ominous looking head and shoulders-type top on the monthly chart also augurs ill for the pair, with declines possible to the key 1.50 lows now not unthinkable.
