Pound to Canadian Dollar Week Ahead Forecast: Consolidating on Charts
Warren TakundaSummary:
The Pound recovered against the Canadian Dollar, briefly topping 1.85 as US Dollar weakness driven by political pressure on the Fed boosted Sterling.
The Pound to Canadian Dollar exchange rate recovered the remainder of its early April losses to open the new week but could be likely to consolidate within roughly a 1.8339 to 1.8504 range in the days ahead.
GBP/CAD rose more than 100 points to trade tentatively above the 1.85 handle by Tuesday following a further broad unraveling of the US Dollar pairs on Monday when many cited the White House pressure on Federal Reserve Chairman Jerome Powell, and threats to his tenure, for the greenback’s latest declines.
This has seen Sterling climb back above 1.8476 and the 61.8% Fibonacci retracement of its early March downtrend from 1.8779, exposing the next resistance level up around 1.8609, and its prospects this week continue to be largely a function of the likely gyrations in the US Dollar pairs.
“Investors need no additional excuses to sell US assets at the moment amid concerns about the impact of the president’s tariff policy. CFTC data from Friday shows a clear and significant weakening in USD sentiment in recent weeks,” says Shaun Osbourne, chief FX strategist at Scotiabank, in a Monday commentary.
Above: GBP/CAD at daily intervals with Fibonacci retracements highlighting possible areas of resistance.
“The only surprise in these data is perhaps that there are still pockets of the market that are clinging on to net USD longs (hedge funds) and that the market is not actually a lot shorter in USD at this point. The risk of a further, significant fall in the USD (and perhaps US assets more generally) appears to be rising,” he adds.
Any possible stabilisation of the US Dollar would likely favour the Canadian Dollar and come as something of a headwind for GBP/CAD as the Loonie often shows greater resilience in the face of a rising greenback, perhaps due to the Canadian economy’s close proximity to the US, its neighbour.
However, any further large decline for the US Dollar wouldn’t necessarily be a great help for GBP/CAD, given how the Canadian Dollar outperformed Sterling by some distance during the worst of the US Dollar rout seen around the middle of April, perhaps due to Canada’s current account surplus with the US.
“The current worst-case scenario for the greenback is that Powell caves in and delivers an emergency rate cut,” says Francesco Pesole, a strategist at ING, in a Tuesday market commentary. “What seems quite likely is that FX volatility will remain elevated, even though the US data calendar is pretty light this week.”
Above: GBP/CAD at weekly intervals with Fibonacci retracements highlighting possible areas of resistance.
Source: Poundsterlinglive
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