Canadian Dollar Forecast to Maintain Advantage Against the Pound this Week
Pound Sterling rose against the Canadian Dollar at the end of last week aided by weaker-than-forecast Canadian inflation data.
The outcome saw expectations that the Bank of Canada (BOC) would start raising interest rates ease.
GBP/CAD recovered from lows of 1.6730 to highs of 1.6920 as the Canadian currency retreated.
Nevertheless the chart of GBP/CAD still shows the pair technically in a downtrend.
Friday’s strong up-day has not changed the fact that the pair continues to move in a sideways range after the very sell-off from the May highs.
The descent initially looked like a typical three wave a-b-c correction, however, when the exchange rate failed to rally after the completion of c-wave and then broke to new lows, the trend technically changed from bullish to bearish.
Following the reversal GBP/CAD has moved sideways in tight corridor between 1.67 and 1.69.
The range lows are circumscribed by tough support from the 200-day moving average (MA), which provides an obstacle to more downside.
For confirmation of a bearish breakout from the range we would want to see a clear break below the 200-day, signalled by a move below 1.6700, to a target at 1.6600.
A further break below 1.6590 would then probably see the pair move down to the next target at 1.6500.
The MACD momentum indicator is well below its zero-line corroborating the downtrend.
Data and Events for the Canadian Dollar
The main event in the week ahead will be the speech of Bank of Canada (BOC) governor Stephen Poloz on Wednesday, June 28, and specifically whether he backs up comments from his deputy Carolyn A. Wilkins, that the bank should begin raising interest rates.
“We think Poloz will stick to the Bank's recent upbeat narrative but is unlikely to provide guidance on the timing of a hike,” said investment bank TD Securities.
If Poloz does reiterate the views of his subordinate it would support the Canadian Dollar and probably lead to more downside for the pair; if not then the Pound will rise, all other things equal.
Politics Central for Pound this Week
On the agenda for Sterling this week:
- Ongoing debate around of Brexit negotiations
- The Government’s alliance with the DUP to allow it to govern
- The debate on the Queen’s Speech, with a vote expected on Thursday
- The government is also expected to present details of proposals on rights for EU citizens after Brexit on Monday.
One of the main events for Sterling in the week ahead is the voting of parliament on the Queen’s speech, which is to be held on Thursday 29.
The event should pass by without little hitch though owing to the successful signing of a pact between the DUP and Conservative parties.
In exchange for a number of key policy pledges and spending, the DUP will support the Government's agenda in Parliament.
This will allow May to Govern effectively and removes a key piece of uncertainty in the UK political sphere. .
The only other events of any note is Bank of England Governor Mark Carney's appearances on Tuesday at 11.00 BST and Wednesday 14.30 at the ECB's central banker's forum.
Markets will be looking for any hints that he supports raising interest rates in the UK, as does the Bank's Chief Economist Andy Haldane.
The Pound dropped last week when Carney said he would not support a rate rise only to rally the following day when Haldane said he would support such a move.
If those looking to raise rates win the argument, we would see another pillar underneath Sterling fall in place.
