Pound-to-Canadian Dollar Rate Forecast for the Week Ahead: Looking for a Pause to the Rally

- Technical studies suggest heightened risk of pause in the GBP/CAD uptrend

- For Sterling, much will depend on this week's EU summit

- For the Canadian Dollar, global trade, GDP numbers and Poloz are in focus

The Canadian Dollar is a notable laggard on global foreign exchange markets over multiple timeframes with the currency recording losses over an host of short- and longer-term timeframes which all suggest momentum is pitted against the currency.

The GBP/CAD exchange rate has - in the context of a broadly weaker CAD - enjoyed a solid uptrend through the course of June and on momentum studies alone we would have to favour more of the same.

We do however note the big reversal witnessed on Friday, June 22 and will question whether this does represent a potential turning point in the exchange rate's trend from a strictly technical point of view.

Those watching this market should be aware that Sterling strength against the Canadian currency might take a breather over coming days and the exchange rate pares back gains to meet the uptrend line drawn in the above.

"Short-term patterns suggest the risk of a minor correction or pause in the rally, however, with the GBP gains today stalling around the 1.7735 (50% Fib retracement) point," says Shaun Osborne, a technical analyst with Scotiabank in Toronto.

However, Osborne maintains a broadly positive view on GBP/CAD and says he continues to think that "the market will push on the 1.7800/50 area."

"Trend signals are bullish on the shorter-term oscillator studies and are shifting to positive on the longer run signals. Support has shifted up to 1.7560/70 now," adds the analyst.

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The Canadian Dollar's Week Ahead: Questions of Trade

The previous week saw the Canadian Dollar take a severe hit on the back of softer-than-forecast retail sales numbers and inflation data, all of which hinted that the Bank of Canada might delay the July interest rate rise markets are so set on.

However, the currency did ultimately reverse those losses, and this suggests to us that for the currency global matters are of greater importance at this juncture. After all, Friday was a good day for those currencies which have been under pressure of late as there was a broadband improvement in global investor sentiment.

There is a danger that this improvement in sentiment is short-lived.

Indeed, at the start of the new week, markets are mixed amidst ongoing fears that US President Trump's trade agenda will contribute to a slowdown in global growth. Trump's intent to alter the NAFTA agreement is meanwhile a particularly important risk factor weighing on CAD.

"The CAD was hit hard on June 14 by the USD’s sharp rally on reports that the US administration was preparing to levy tariffs on “tens of billions of dollars” of Chinese goods. But unlike some of its peers, the CAD has yet to show any signs of recovery," says
Neil Mellor Senior Currency Strategist, BNY Mellon.

Mellor says trade remains one big uncertainty hanging over the country: "the US and Canada have exchanged both tariffs and barbs in good measure and the recent G7 in Quebec was hardly a high point in relations between the two countries."

Mellor says concerns over trade might put the Bank of Canada on hold concerning future interest rate rises.

Therefore, over coming days we will continue watching headlines concerning the US approach to trade in general, and NAFTA in particular. As always, it is nigh on impossible to expect Trump's next moves, but what we are certain of is a degree of caution will hang over the Canadian currency.

On the calendar, we have a speech by Bank of Canada Poloz to look forward to mid-week 20:00 B.S.T. The details of the speech are unclear, but we are certain markets will be looking to references to global trade dynamics as an indicator as to what the Bank's next moves on rates will be.

Friday sees GDP numbers released with markets looking for a paltry 0.1% month-on-month number for April. Deviation from this figure will surely move the currency.

Also on Friday watch the tone struck by the BoC in their Business Outlook Survey: In the past the contents of the survey have been known to influence moves in the currency.

The Pound's Week Ahead: EU Summit

Brexit is front and centre for Sterling in the coming week with the European Council set to meet on June 28-29. Brexit will be discussed on Friday, June 29 from 08:00 B.S.T onwards, so look for headlines concerning the matter to be delivered throughout the day.

We have seen over recent days a further ramping up of Brexit headlines ahead of the summit, with both sides engaged in jockeying, but, remarkably the Pound has hardly moved on the headlines.

Markets are simply looking for concrete outcomes that give a clear view on what the future will look like. Perhaps this week we will get such outcomes.

On the data and domestic events calendar, watch Governor Mark Carney set to make a speech on the morning of Wednesday, June 27. The Bank of England proved to be a big mover of Sterling in the week past as the message to expect higher interest rates over coming months was telegraphed and markets will be looking out for any further information concerning policy matters. We can't however at this stage say whether this scheduled speech will touch on monetary policy.

Data is all second-tier in nature with a revision to Q1 GDP being tipped for Friday. Markets are looking for the 0.1% growth that was initially reported to be confirmed by the ONS.

With the EU summit due on the same day we are confident in suggesting this will matter little for markets.

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