Pound-to-Canadian Dollar 5-Day Technical Forecast, Data and Events to Watch

The Canadian Dollar will probably take its cue from GDP and labour market data in the coming week, whilst The Pound will move according to Brexit negotiations while the GBP/CAD charts remain marginally bullish.

The Pound-to-Canadian Dollar exchange rate is seen rising in a channel which has recently broken above a major multi-month trendline, as shown on the long-term weekly chart below:

The break is bullish and suggests more upside is on the horizon as the pair consolidates following its breakout and rises.

The daily chart shows the trendline penetration in more detail and the subsequent move higher:

After the initial surge the pair lost ground and fell back for a restest of the trendline before moving up again.

The most recent activity, which though not particularly strong, has, nevertheless, been steady - with seven out of the last nine days registering gains, albeit small gains.

We expect the exchange rate to continue rising, with a break above 1.7014 leading to a move up to a target at the 1.7174 November 1 highs (target 1.7170).

Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for international payments. Learn more here.

Data and Events for the Canadian Dollar

Third quarter GDP data, which is out on Friday, December 1, at 13.30, will be the main release in the week ahead.

Q2 saw a 1.1% quarter-on-quarter rise, which was the fastest since 2015, and several analysts have indicated this pace is too fast and Q3 will see a slow down.

But not all are gloomy, Canadian investment bank TD Securities see GDP on an annulaised basis rising by a slightly higher 1.7% compared to the market consensus of 1.6%.

"GDP growth has decelerated from the lofty pace of 17H1 but remains above estimates of potential and in line with BoC projections. Our forecast incorporates a sharp pullback in exports, weaker residential investment and a more moderate increase in consumption," say TD Securities.

An above-expectations GDP result will help renew faith in the Canadian Dollar which could rise on the news.

Other significant data in the coming week includes labour market releases also out on Friday at 13.30.

Employment Change is forecast to register a 10k increasae in November - a notable slowdown from October's 35k increase.

The Unemployment rate, meanwhile, is forecast to slip to 6.2% in November versus 6.3% previously.

Data and Events to Watch for the Pound

Whether the Pound can ultimately break higher against the Euro will depend on progress over Brexit negotiations; it appears this issue will increasingly dominate sentiment on Sterling into year-end with a key EU summit on the matter in mid-December being a highlight.

It is at this summit that EU leaders will decide whether or not to greenlight or redlight the progression of negotiations onto the all-important issue of trade and the future relationship.

Businesses and Sterling will need this process to begin as soon as possible.

But much like the many-headed Hydra, a mythical creature that Hercules fought, which regrew two new heads for every one he cut off, so the Brexit negotiations keep growing new problems for Prime Minister Theresa May.

Just after appearing to agree on a divorce bill that will help propel Brexit negotiations onto the issue of trade, a new problem has presented itself in the form of the border between Northern Ireland and the Republic of Ireland.

Irish Prime Minister Leo Varadka has threatened to veto any EU agreement to progress Brexit negotiations if he feels progress on the Irish border is inadequate; this is quite an interesting stance considering such a veto could push the EU and UK to a hard-Brexit and no European country has more to lose on a hard-Brexit than Ireland considering the UK is easily their largest trading partner.

A senior Irish diplomat in the EU has said it would really be better all round if the UK remained in the trade and customs union - or at least the customs union as then there would be no border issue.

He warned the UK people not to put too much faith in future free trade agreements as even the best of these, would "fall far short of being in the single market."

One solution would be to essentially keep Northern Ireland in the EU (exempting it from Brexit) so that the border could be left open, however, this idea has been met with firm resistance from the DUP, Theresa May's partners in government, and her only key to a parliamentary majority.

With no clear solution, the Irish border issue is now likely to further delay the onset of the next stage of Brexit talks, and Theresa May has only got until December 4 to come up with a solution.

Clearly, how the Ireland issue evolves in the coming week, will probable be a factor impacting on Sterling with any substantial break-down suggesting the Brexit process will be slowed down.

"The bigger hurdle to clear in order to reach “sufficient progress” is agreement on the Irish Border. The Irish Government’s position is that an “electronic border” is not viable. As a result, it won’t settle for anything less than a UK commitment to regulatory equivalence between Northern Ireland and the Republic in line with EU standards," says Andrew Wishart, UK Economist with Capital Economics.

Wishart notes the UK’s current intention is to leave the Single Market and the Customs Union and regulatory equivalence across the Irish border would require a customs border between Northern Ireland and the rest of the UK, which David Davis has ruled out.

But Mr. Barnier pointed out in a speech on Monday that contrary to arguments this would come at the cost of the integrity of the UK single market, many rules in Northern Ireland already differ from that in the rest of the UK.

From a hard-data perspective, the main release in the coming week will be Manufacturing PMI on Friday, December 1, at 9.00 GMT, which is forecast to show an uptick to 56.5 from 56.3 previously.

TD Securities expect the result to be even higher as Eurozone growth spills-over into the UK:

"While strength in its euro-area counterparts is being driven by broad-based growth there, spillovers to UK businesses should nevertheless give the measure a lift, and November's CBI indicators seem to suggest continued healthy growth by firms," they said in a week ahead round robin.

Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for international payments. Learn more here.