The GBP/CAD: Forecast, News and Events for the Next Five Days
The Pound to Canadian Dollar pair has been in a downtrend since May after the Bank of Canada (BOC) decided to raise interest rates – supporting CAD - and Sterling weakened due to Brexit uncertainty.
From highs of 1.7800 in May, it fell to Friday’s lows of 1.6128.
The already established downtrend will probably continue, given the lack signs saying the contrary, and a break below the 1.6128 lows would confirm an extension down to the next target at 1.6000.
The MACD momentum indicator, however, is not backing up the bearish forecast as it is converging with price action.
This is shown by the fact that price action between two lows, annotated “a” on the chart below is falling, whilst momentum between the same two points shown as “b” is rising, revealing a severe lack of downside momentum.
Our call for the pair to continue lower, therefore, whilst it still stands, is not a confidence call.
News and Events for the Canadian Dollar
The main release in the coming week for the Canadian Dollar (Loonie) is Retail Sales data, on Tuesday, August 22 at 13.30 BST.
Previously, retail sales showed a 7.3% rise in May compared to May 2016 and a monthly change of 0.6%.
It is expected to show a -6.1% yoy fall in June (headline), however, according to TD Securities, due to a fall in gasoline prices.
Overall, they say retail sales are strong in Canada reflecting strong pending.
“Even with a soft finish to the quarter, retail sales are still on track for an annualized gain of roughly 5.0% quarter-on-quarter in Q2, suggesting a healthy contribution to GDP from personal spending.
News and Events for the Pound
The week starts off with Public Sector Net Borrowing in July, at 9.30 BST on Monday, which is forecast to show the British government borrowing 0.5bn more than it did in July 2016 when it borrowed 6.28bn less.
The Consortium of British Industry (CBI) Industrial Trends Survey for August is out at 11.00 on Tuesday, August 22, with forecasts of the ‘balance’ – of “yes” to “no” responses – expected to rise to 10, from 8 in the previous month.
Thursday is the main day for Sterling in the week ahead from a data perspective, and the second estimate for GDP in the second quarter, is probably the main release.
Q2 GDP rose by 1.7% according to the first estimate, and the second estimate is expected to show no-change from this; the Q1 estimate showed growth of 2.0%.
Mortgage Approvals are expected to show 40.2 thousand more approvals in July, according to data from the British Banking Association (BBA) out at 11.00 on Thursday. Some forecasters have stated they will rise to 40.9.
Mortgage approvals have formed a compelling triangle-shaped pattern when seen charted over recent years (see below).
According to research, triangles have a minimum of five component waves, and this pattern has formed fives waves already, labelled a-e, and as such could be complete.
The next move would be expected to be a breakout either higher or lower, however, what is highly probable is a period of high volatility in the not too distance future.
As we noted last month when making the same analysis of mortgage approvals, a reading of above 47,500 would indicate an upside breakout to a target of 55k whilst a reading below 37k would lead to a breakdown to a target at 30k.
Finally, Business Investment is a major release for the Pound, also out on Thursday, at 9.30 BST.
Markets will be following the release closely as Investment has been unexpectedly strong since the referendum when it was one of the things which was expected to be hit hardest, given companies need certainty before making investment commitments.
If investment continues to remain robust that may well help the Pound.
Finally, towards the end of the week the main event for financial markets will be the Jackson Hole symposium in the US, where central bankers will be meeting to discuss monetary policies and the global economy, and where Bank of England governor Carney, may well contribute to the flow of commentary.
