GBP/CAD Week Ahead Forecast: Big Supports

• GBPCAD enters the new week on back foot
• Thanks to big fall on previous Friday
• But support is near at hand
• UK and Canadian inflation on tap

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The significant 1.0% drop in the Pound to Canadian Dollar exchange rate on Friday means the technical outlook is breaking down; however, some big support zones hint at limited downside and inflation figures on either side of the Atlantic will have the final say.

GBPCAD fell sharply as the USD rebounded on Friday, confirming the importance of the USD to CAD exchange rates. The fall takes us to 1.6943 at the time of writing, located just north of the 100-day moving average (DMA).

This level could form the first area of support for GBPCAD and limit downside potential during the last significant trading week of 2023.

Above: GBPCAD at daily intervals with moving averages annotated. Track CAD with your own custom rate alerts. Set Up Here.

Just below the 100 DMA is the 200 DMA at 1.6885, which is likely more significant from a technical picture. Given the proximity of these two important DMAs, we are inclined to see GBPCAD as being insulated against further downside.

"The 200 day moving averages can be key pivot points over long horizons and currencies along with other assets tend to get 'trapped' above or below their moving averages for months at a time," says W. Brad Bechtel, an analyst at Jefferies, the investment banking and capital markets firm.

Looking at the fundamental interest, Canadian inflation figures are due for release Tuesday at 13:30 GMT, with the headline CPI expected to hit 2.9% year-on-year in November, bringing it closer to the Bank of Canada's target.

The fall from 3.1% previously will likely be driven by an expected -0.2% month-on-month figure. The median CPI print, which the Bank of Canada is particularly interested in, is expected at 3.3%, which suggests there is still some way to go before inflation is sustainably at the 2.0% target.

Should data come in below expectation, the Canadian Dollar can come under pressure as investors raise expectations for the number of Bank of Canada rate cuts that are likely in 2024.

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Friday sees Canadian GDP released, with a figure of 0.2% m/m expected for October. An undershoot would suggest that the Bank of Canada has a rapidly cooling economy to consider in future deliberations, opening a door to a rate cut in the first half of 2024.

UK CPI inflation is due Wednesday at 7 AM GMT and is expected to print at 4.4% year-on-year in November, down from 4.6% in October, with the core CPI reading expected at 5.5%.

Should the data undershoot, we could see the Pound come under pressure through the midweek session.

"Base effects in the food category is likely to be the largest source of downward pressure in November. Lower petrol prices should also weigh on headline inflation," says a note from Oxford Economics.

Retail sales and quarterly GDP figures will cap the week off, with markets looking for retail sales to print at -1.1% year-on-year for November. Quarterly GDP is expected to be flat at 0% quarter-on-quarter in the third quarter.

Note that much of the sting in GDP from a market perspective will have been removed by last week's monthly GDP release, so this is expected to have a limited impact on the Pound.