The Pound v Canadian Dollar Rate's Decline Could be Over as Major Basing Pattern Observed
A broad-based bullish reversal appears to be taking place on the GBP/CAD exchange rate.
In short this means that the outlook for Pound Sterling has improved markedly against its Canadian counterpart.
The monthly chart is showing two bullish hammer-like reversal candles which look like they are forming an important bottom.
The pair has formed an a-b-c-d pattern from the January 2016 highs down to the October 2016 lows.
The pattern completes when a-b is a similar length to c-d as is the case now. when the of an
When a-b-c-d patterns finish they usually lead to a reversal in the trend signifying we may be about to witness a longer-term recovery.
Zooming-in to the weekly charts and we see a market activity has formed a probable double bottom reversal pattern with a neckline at the 1.7127 highs.
A break above the neckline would confirm an extension higher equal to the height of the pattern, which in this case suggests a move up to as high as 1.8500, although we have set a more conservative target of 1.8000 where the 200-day moving average is situated.
Finally, looking at the daily chart and we see that it is no less bullish.
The pricing activity appears to have formed into a flag chart pattern which is likely to break higher.
Whilst a break above the 1.6627 highs might suffice to confirm a move higher, those who wish to play it cautious might want to wait for more confirmation from a clearance of the R1 monthly pivot at 1.6679 first, signalled by a break above 1.6800.
This would probably trigger a move to an upside target at 1.7100.
Data out on Wednesday showing a rise in oil inventories failed to support the Canadian Dollar which is sensitive to the movements of black gold.
GBP/CAD consequently continued pressuring the 50-day MA at 1.6479 in a bid to break higher, although Sterling itself was on the back foot after a leading official from then Bank of England (BOE) said that there were risks of a sharp downturn in business investment in the economy.
Other data also showed a rise in Housing Starts in Canada to 207k beating forecasts of only 200k.
With regards to Sterling, watch industrial, manufacturing and trade data out on Friday February 10.
The big release for the CAD is on Friday when employment data is released and currently forecast to show a -5k drop in jobs and 6.9% Unemployment Rate. If the result is better than that CAD may rebound.
Markets will be looking for confirmation that the UK's growth remained robust into the end of 2016 with a reading of 0.2% growth.
Manufacturing production is due out at the same time and the figure expected here is 0.5%.
The ONS also release trade statistics and this will be important for economists trying to gauge whether the weaker Sterling has boosted the UK's exports.
A deficit of 11.5BN is expected but anything better could suggest the economy is rebalancing in the right direction.
The UK currently suffers one of the largest current account deficits in the developed world, i.e it exports more than it imports. This leaves Sterling vulnerable at times when confidence is low, as is the case ahead of Brexit.
But were exports to pick up this deficit would close and the outlook for Sterling would be more assured.
