GBP/CAD Week Ahead Forecast: 1.72 in the Frame
- Written by: Gary Howes
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Image © Adobe Stock
The Pound to Canadian Dollar exchange rate (GBP/CAD) looks a lot perkier than at this same point one week ago, courtesy of that soft Canadian jobs report on Friday.
News that Canada shed 2.2K jobs in the month, a marked deterioration from the 4.7K created in February and far below the 25.9K expected, prompted a selloff in Canadian Dollar exchange rates, helping GBP/CAD higher by a third of a per cent to 1.7175.
The move takes the GBP/CAD above the 50-day moving average again, which had acted as support in March:
Above: GBP/CAD at daily intervals with the Fibonacci levels and 50-day MA indicated. Track GBP/CAD with your own custom rate alerts. Set Up Here
A look at the above chart shows the 50-day MA converges with the 38.2% Fibonacci retracement of the GBP/CAD's December-March rally.
The Fib indicator offers some decent predictive powers with the next area of resistance emerging at the 23.6% retracement line at 1.7212, which makes the psychologically significant 1.72 a clear short-term upside target.
It's a quiet week regarding data and calendar events in Canada and the UK, which leaves the market free to extend recent themes.
The market raised odds for a Bank of Canada rate cut in June, which would put the central bank in line with the likes of the ECB and Bank of England when delivering a first cut, ceding any previous rate advantage the CAD might have previously enjoyed.
An assumption of recent months was that the Bank of Canada would cut alongside the Federal Reserve, owing to the strong correlations in the U.S. and Canadian economic cycles, with Governor Macklem preferring to minimise any potential negative impacts that might arise by breaking rank with the Fed.
This ensured that the CAD would follow the USD higher and lower, making it a 'mini U.S. Dollar' trade.
Although the USD remains 2024's top-performing currency, a breakdown in this correlation could be underway, which makes us more confident that GBP/CAD upside is preferred in the coming weeks.
