Canadian Dollar Week Ahead Forecast: GBPCAD Eyes 1.73, USDCAD Struggling to Progress

• GBPCAD could hit 2023 peak soon
• But could struggle to extend beyond
• USDCAD still pointed lower
• But, progress is slow and oftentimes frustrating

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The Canadian Dollar is the worst-performing major currency at the start of a new week that features the release of Canadian employment numbers, suggesting it is intent on extending a bout of underperformance that has been in place for at least a month now.

To be sure, the underperformance is less evident against the Dollar, where which has weakened through November on an improvement in global investor sentiment, but is clearly evident against the Pound and the rest of the G10 group of currencies.

The Pound to Candian Dollar exchange rate remains within a clearly defined short-term uptrend that is showing little evidence of impending technical breakdown, and further gains can be expected this week.

The obvious target for this move is the 1.73 level, which forms the 2023 high and where the Pound has failed to extend beyond on four occasions this year.

This target is now less than a hundred pips away and could be tested before the end of the week, but it will be interesting to see the extent of the sell orders layered here.

Strong selling pressure at this psychologically significant marker could derail the uptrend and turn the exchange rate lower if recent history is a guide. But, should this level be breached, there should be clear air for the bulls heading into year's end.

We are also watching the Relative Strength Index (lower panel in the chart below) as it approaches 70, which is considered an overbought signal. When combined with the high-water market at 1.73, overbought conditions would also favour a turnaround or consolidation.

The Canadian Dollar has been strengthening against the U.S. Dollar through the course of November, taking the Dollar to Canadian Dollar exchange rate to 1.3640 from 1.39.

"The drift lower in the USD since early November has the look of a slow motion roll-over to me— in that the technical tone has clearly shifted (bearishly for the USD), but the CAD is finding it hard to make meaningful progress at the moment," says Shaun Osborne, Chief FX Strategist at Scotiabank.

He adds that the loss of trend support off the July lows tilts USDCAD risks more clearly to the downside for funds in the near term.

"It also should mean strong resistance on USD gains to the 1.3665/70 area. Support is 1.3570/90, then 1.3495/00," says Osborne.

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Looking at Canada's data docket this week shows monthly GDP falls due on Thursday at 13:35 GMT, and the market looks for an improvement of the previous reading of 0%.

However, it will be Friday's job figures where the real interest lies. The market looks for employment to have grown 14K in November, with the unemployment rate ticking up to 5.8%.

Should the data beat expectations, the Canadian could see quite a decent recovery that pushes GBPCAD and other exchange rates lower.

"Jobs data nevertheless remains the main pocket of strength of the Canadian economy," says a currency note from Crédit Agricole.

"Although even the eventuality of frothier wages growth may hardly tempt the BoC to go with anything other than unchanged rates at its December meeting. With only a quick update of its assessment and no new MPR, the BoC could insist on the soft patch recently hit by the Canadian economy, while not completely clearing the prospects of extra tightening off the table just yet," adds the note.