GBP/CAD is at risk of breaking down through an important technical level which would likely open the door to yet further losses.
GBP/CAD is chewing through the trendline for the move up from the October lows.
Today’s price action is now clearly below the trendline, indicating it may have been breached.
Such a move would probably fall an equal distance as the move prior to the trendline break (x on the chart), down from the 1.7100 peak.
This would calculate the follow-through lower as reaching support from the central monthly pivot (PP) at 1.6350.
Monthly pivots are important support levels where prices often rebound due to buying or selling pressure.
Uptrend Still Technically Intact
Despite the risk of a break below the trendline the uptrend remains intact as long as the trendline remains unbroken.
A move, therefore, above the 1.7127 highs would probably confirm an extension up to a target at the monthly pivot (R2) at 1.7500.
Scotiabank’s Osborne Expects More Downside
More downside is forecast by Scotiabank’s FX Strategist Saun Osborne.
He sees the recovery from the October lows as corrective rather than trending.
“It is notable that the GBP rebound has not made a new cycle high in this recovery, however, which suggests that the move up in the past few weeks has been corrective and that the broader trend lower remains intact,” said the Scotia strategist.
1.66 as pivotal to the pair’s next move – “above bid; below offered.”
Longer term Osborne sees weakness.
“We still rather think longer-term technical pointers suggest the GBP is heading back to the 1.52/1.55 range. Look to sell GBP rallies,” he said.
Canadian Retail Data Undershoots
Canadian Retails Sales saw headline Sales come out at 0.6% mom in line with expectations but Core Sales disappointed, coming out at only 0.0% versus the 0.5% forecast.
Although this is another signal of subdued growth few analysts forecast the Bank of Canada (BOC) to lower interest rates in the future.
Scotiabank’s Jean Francois Perault expects the BOC to keep policy on hold in 2017 as headwinds lead to neutral growth.
“We now forecast the Bank of Canada to stay on hold until 2018 as immediate uncertainty about trade policies and more durable increases in market- determined long-run borrowing costs dampen the recovery in Canada’s economic activity.”
The UK Chancellor’s Autumn Statement on Wednesday 23 could provide volatility depending on the level of fiscal stimulus he decides to incorporate.
A high level of stimulus would benefit the pound in the short-term by raising gilt yields.
Some analysts, such as Ipek Ozkardeskaya of London Capital Group, see the Chancellor constrained by the UK’s already existing high levels of national debt.
"Hammond has already warned that the UK's “eye-wateringly large debt” would give him little room for manoeuvre," said Ozkardeskaya.
However, Bloomberg indicates a 100bn stimulus dump might be in the pipeline and would not be unfeasible, calculating it would lead to a 30bn annual deficit in 2020 instead of the previous government’s plans to completely eradicate the deficit by then.