Pound to Stay Under Pressure v Canadian Dollar Suggest Technical Studies

The Canadian Dollar is benefiting from a positive assessment from the Bank of Canada, and assuming data continues to be positive in the week ahead will probably have the upper hand over politically risk sensitive Sterling.

From a technical perspective, the Pound to Canadian Dollar exchange rate (GBP/CAD) has stalled and is moving sideways at the level of the 200-day Moving Average (MA).

It will probably continue lower once it has finished going sideways given the strength and steepness of the prior down-move.

The 200-day MA could be a difficult level to break, however, so we would seek confirmation from a move below the 1.6680 level, to a target at 1.6500.

The MACD is below its zero-line corroborating a continuation lower.

The pair had once formed a double bottom bullish reversal pattern, visible on the weekly chart.

It rose up to highs of 1.7900 before suddenly reversing and coming crashing down.

The break below the neckline of the double bottom at 1.7100 was particularly bearish, and despite support from the 50-week MA impeding downside, we see the small bearish trend eventually continue.

Data and Events for the Canadian Dollar

The Canadian Dollar has recently recovered following upbeat comments from the Deputy Governor of the Bank of Canada who said that the economy was doing well and the Bank would be considering ‘normalizing’ its monetary policy stance sooner than previously thought.  

In the week ahead some major news releases will help inform that view with the release of Retail Sales and Inflation data for April and May.

Retail Sales for April are to be released at 13.30 BST on Thursday, amid expectations for a gain of 0.3%, following an increase of 0.7% in March. Core sales are forecast to climb 0.7%, after falling 0.2% a month earlier.

On Friday, Canada will release inflation data at 13.30 BST, and it is expected to show that inflation increased 0.3% last month, after rising 0.4% in April. On a yearly base, CPI is projected to climb 1.5%.

The Canadian Dollar starts off from a positive footing so any above-expectation’s releases are likely to lead to an appreciation in the currency.

Data and Events for the British Pound

Following Thursday's surprisingly hawkish MPC debate, where 3 members voted for a 25bps hike in rates and where the minutes took a hawkish tone, "markets will be on the lookout for any comments from BoE officials. Note that Governor Carney’s postponed Mansion House speech will be rescheduled," says Victoria Clarke at Investec.

The week will likely be dominated by politics once again, particularly so given that the economic data calendar is very quiet.

The domestic focus will be on whether the Conservative Party reaches a final deal with the DUP over a confidence and supply agreement, which would provide the government with a narrow majority in the House of Commons.

Reports this week have suggested that a deal between the two parties was close, but that due to the tragic fire at Grenfell Tower a conclusion would be delayed until next week.

Also due next week is the Queen’s Speech which has been rescheduled to Wednesday, whilst formal Brexit negotiations are also set to begin.