GBP/CAD Rate: Forecast for the Coming Week

The balance of risks point to a hieghtened chance of more upside for GBP/CAD as the falling price of oil weighs on CAD, and the UK elections on Thursday favour a conservative win.

The chart for GBP/CAD shows a complicated picture with one perfectly calid interpretation being that it is showing the short-term uptrend resuming after the end of the correction from the 1.78 highs.

The pair was moving lower until it met the 50-day MA and rebounded, potentially reversing the down-move and beginning a new up-wave:

We are currently in the 1.73s and although my gut feel tells me the pair is reversing and going higher it is too early to be sure.

Until there is more upside confirmation, however, I have to accept that the mini-downtrend from the 1.78 high is still intact and likely to continue.

I would look for a high threshold of confirmation to expect more downside, however.

Apart from the 50-day MA, there is a further tough support level in the 1.71s, and I would ideally wish to see a break below 1.7000 for confirmation these had been broken and that the pair was sliding lower to the next downside target at 1.6850.

Data, Events to Watch for the Canadian Dollar

The Canadian Dollar is at risk of depreciating in the week head.

The negative outlook for the price of oil, which is a major influencer of the Canadian Dollar, could weigh in the week ahead.

The price of oil recovered temporarily after OPEC decided to curb production at the end of May but since then has fallen back below $50 per barrel after Nigerian & Libyan production picked up.

The technical outlook for oil remains negative, according to Blackwell Global’s Mathew Ashley.

“Oil prices could be in trouble moving forward as they seem to have shrugged off both renewed commitments from OPEC and a 6.43M barrel draw in US inventories. This could be, in part, a result of the technical bias which is looking fairly dour going ahead. Indeed, current readings are suggesting that we could see the commodity retreat to the $45 mark within a fairly short timeframe,” says Matthew Ashley at Blackwell Global.

Oil Prices

Apart from a possible drag from oil prices the other main data event for the commodity is likely to be the release of the Bank of Canada’s Financial Stability report.

Commenting on the Bank of Canada report, ING’s Chris Turner says, “Fears of the Canadian housing bubble have prompted near record  speculative shorts against CAD,” and “BOC highlighting risks (in its report) could weigh on CAD.”

The other main release is the May jobs report at 13.30 BST on Friday.

Unemployment has been trending lower recently, although a further decline my not support CAD as much as expected as, “BOC's fixation on inflation suggests even a good jobs number doesn't trigger a re-pricing of the rate curve,” and therefore much upside for CAD.

Data, Events to Watch for the Pound

The key event for Sterling is the election on Thursday, June 8.

Most commentators expect a Conservative win but Labour has recovered to within 3% of the Tories in the polls from over 20% three weeks ago, and there is now a threat of there being a hung parliament.

“A failure to secure a more comfortable margin of seats (17 as of now) would weaken May’s position going into Brexit talks,” say NBF Economics Strategy.

A small majority would lead to the Pound weakening – only a majority of over 30 would help Theresa May in negotiations and support Sterling according to ING.

“We think were Theresa May's government to increase its working majority into the 30-50 seat area in Thursday's vote, GBP could enjoy a very modest bounce,” says ING’s Chris Turner.

“The main risk to GBP is an even smaller Conservative majority or a hung parliament. This would send EUR/GBP to 0.89 and USD/GBP to 1.26,” continued Turner.

Other major data releases, including PMI’s are likely to be completely overshadowed by Thursday’s election.

But we will be watching the release of Service PMI data from IHS Markit and the CIPS on Monday.

Construction and Manufacturing PMI data have both surprised to the upside and confirm that the UK economy is seeing activity accelerate in the second-quarter of 2017.

Recall the first-quarter only saw growth rise by 0.2%.

The services sector accounts for in excess of 80% of UK economic activity therefore we must see a similar beat on expectations in this sector to confirm the economy is picking up speed again.

Analysts are forecasting a reading of 55.0.
  

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