Pound / Canadian Dollar Outlook: This is Where GBP Strength Could become Apparent

Analyst Fawad Razaqzada at Forex.com believes it is against the Canadian Dollar where Pound Sterling could experience some decent gains.

Two currencies that are looking vulnerable ahead of the weekend are Britain’s Pound and Canada’s Dollar.

Sterling is under pressure following the release of some disappointing retail sales figures while the Canadian Dollar continues to lick wounds inflicted by this week’s Bank of Canada event.

The BoC warned of a rate cut amid concerns about Donald Trump’s planned US protectionist policies, which may derail the Canadian economy.

“The Loonie may come under further pressure if Trump presses ahead with his ambitious and controversial plans. We will have a good idea about that at the inauguration speech later this afternoon,” says Razaqzada.

With regards to the pound, the 1.9% drop in retail sales is disappointing for foreign exchange speculators who were turning bullish on the Pound because the downbeat currency looked like it had turned the corner.

However, Razaqada says it is too early to bet against Sterling.

“With inflation rising in the UK and other economic pointers generally remaining strong, the Bank of England is no longer as dovish as it once was. Thus, today’s weakness in the sterling could be short-lived, especially against other weaker currencies – and the Canadian dollar is fast turning into one such currency,” says Razaqada.

Therefore, argues the Forex.com analyst, the GBP/CAD is where the pound’s potential strength may become more apparent, as opposed to, say, the GBP/USD.

Interestingly, the GBP/CAD looks like it is also in the process of forming a major technical bottom pattern.

Razaqada notes the following concerning the exchange rate’s technical outlook:

· The long-term bullish trend line is still holding after several tests

· A bullish engulfing candlestick pattern is being formed as a result of this week’s rally, though the week is not over yet so this is subject to change

· A potential double bottom at 1.5730 has been formed, though there hasn’t been a break in market structure of lower lows and lower highs yet and the bearish trend is still holding

“So there are clear technical signs of a potential trend reversal for the GBP/CAD pair, though we will need to see more price action before turning decisively bullish. But the early signs are promising,” says Razaqada.