The Pound-to-Canadian Dollar; Tech Forecast, News, and Events in the Coming Week
Canadian housing data dominates the calendar next week whilst for the UK the main releases relate to trade and economic growth; charts show our previous downside target hit.
The Pound-to-Canadian Dollar rate has sold off after simultaneously breaking out of a channel and a triangle, and it has now reached and surpassed our initial downside target at 1.6830, at the level of the 200-day moving average.
Large moving averages such as the 200-day provide dynamic support to prices where down- trending markets will stall, or even bounce.
Traders aware of this phenomenon often attempt to profit from the expected bounce by buying the currency at the moving average and this tends to magnify the counter-trend 'effect'.
The exchange rate will probably now extend sideways just above the level of the 200-day MA, but there is also a risk of further downside eventually because the target calculated from the channel breakout using the height of the channel is at 1.6480.
A break below 1.6750, therefore, would probably provide confirmation of more downside to a target at 1.6500.
The MACD momentum indicator has now fallen below the zero-line which is a sign the trend and is now bearish.
Data and Events for the Canadian Dollar
The main releases in the week ahead cover the housing sector.
Recent employment data from Canada was particularly strong and gave the currency a huge boost so analysts will be looking for confirmation from the housing sector data in the coming week.
On Tuesday, January 9, at 13.15 GMT Housing Starts for December are released and expected to show a 240k rise in starts.
Building Permits data is released on the following day (Wednesday) at 13.30 and is forecast to show a 1.5% rise in November.
Finally, house prices are out at 13.30 on Thursday and forecast to rise by 3.5% in November compared to the same time in the previous year.
Analysts are overall quite upbeat for CAD.
"2018 should be a good year for the Canadian dollar. The economy is growing, consumers are spending and the labor market is strong," Says BK Asset Management, Managing Director, Kathy Lien.
Data and Events for the Pound
The week kicks off with the extremely timely, December British Retail Consortium (BRC) Retail Sales figures out at 00.01 GMT on Tuesday 9, with analysts keen to gauge whether the economic slowdown is worsening or not.
The big day for the Pound, however, is Wednesday, December 10, when Industrial and Manufacturing Production data for
November is out, as well as the Trade Balance and an estimate of GDP.
Industrial Production is forecast to rise 0.4% from 0.0% in October, and Manufacturing production by 0.3% from 0.1% previously; although the data is important, neither of these sectors is very big anymore so only large unexpected shifts are likely to move the Pound.
The trade deficit is forecast to widen in November to -11.0bn from -10.78bn previously, and if it is even wider than expected, then the Pound will weaken as it reflects net demand for the currency from buyers of UK exports.
Finally, The National Institute of Economic and Social Research (NIESR) GDP estimate for the last three months, released at 13.00 GMT on Wednesday, is expected to come out at 0.5%.
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