Mon, Dec 05, 2022 @ 04:37 GMT
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Currency Pair of the Week: GBP/CAD

This week brings a plethora of data from the UK, as well as the Autumn budget.  On Tuesday, the UK Claimant Count Change for October will be released. Expectations are that the Claimant Count rose to 27,000 vs 25,500 in September. If the print is in-line with expectations, it will be the 7th consecutive month of worsening jobs data after the figure peaked in March at -81,600.  On Wednesday, the UK will release inflation data for October. The headline print is expected to have increased to 10.7% YoY vs a previous reading of 10.1%.  BOE Governor Bailey said at the last BOE meeting that he expects inflation to peak at 10.9%.  Could this be peak inflation for the UK?  However, the Core CPI is expected to have fallen to 6.4% YoY from 6.5% YoY.  Finally, on Friday, the UK will release its October Retail Sales data.  Expectations are for a consensus of +0.3% MoM vs -1.4% MoM in September.  Retail Sales ex-fuel is expected to be 0.6% vs a previous reading of -1.5% MoM.  In addition to the economic data, the UK will finally release its Autumn fiscal budget, which was originally to be released on October 31st under the Truss administration. Chancellor Hunt is expected to increase taxes and cut spending.  Some of the proposals include lowering the threshold for the top income tax rate and a windfall tax on energy companies.   In addition, Chancellor Hunt may cut spending in areas such as education and law enforcement.  For our complete preview of the Autumn budget statement see here.

This week, Canada will release both its CPI and its PPI for October. After the blowout number of jobs created in October, +108,300 vs +10,000 expected, the Bank of Canada now has permission by the markets to do as it pleases at the next BOC meeting on December 7th.  The inflation data due out this week may be what decides how much to hike rates at the next BOC meeting.  Expectations are that the October CPI will remain at September’s print of 6.9% YoY.  The Core inflation rate is expected to fall to 5.6% YoY vs a previous reading of 6% YoY.  In addition, PPI is expected to have fallen to 7.8% YoY vs a previous reading of 9% YoY!  If the data is higher than expected, will be BOC be tempted to raise rates by 75bps?  Recall that at the October BOC meeting, the central bank only hiked rates by 50bps, though it said that more rates hikes were to come due to high inflation. Pay close attention to this data to get a better gauge of what the BOC will do next.

On a daily timeframe, GBP/CAD made a year-to-date high of 1.7378 on February 21st and had been moving lower until September 26th, when the pair fell below the previous all-time lows of 1.4830.  GBP/USD made its way down to 1.4058.  Notice that the candlestick on the daily timeframe for that date was a hammer, an indication that price may be ready to reverse.  Price did indeed move higher and is currently trading near the 50% retracement level the February 21st highs to the all-time lows, near 1.5718.

Source: Tradingview, Stone X

On a 240-minute timeframe, GBP/CAD has been moving higher in a rising triangle.  As price nears the apex of the triangle, expectations are that price will break out in the same direction as the prior trend, which is this case would be higher. The first resistance above the 50% retracement level is the (nearly) horizontal line at the top of the triangle near 1.5820.  Above there, price can move to the 61.8% Fibonacci retracement from the February highs to the September lows at 1.6110, then horizontal resistance dating to April 5th at 1.6296. However, if the 50% retracement holds, the first support is at the upward sloping trendline of the triangle near 1.5440, then the lows from November 4th at 1.5172.  Below there, the next support is at the previous all-time lows of 1.4830.

Source: Tradingview, Stone X

With economic data due out of the UK and Canada this week, along with the UK budget statement, GBP/CAD could be volatile.  One must consider this data when thinking about what each respective central bank will do next and what it could do to the price of GBP/CAD!
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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