The GBP to CAD exchange rate has vaulted straight over a major obstacle in the form of the 50-day MA, a level which had previously been earmarked as setting a ceiling to further gains for the pair.
Situated only 44 hundredths of a cent above Friday’s close at 1.8563, the 50-day MA was expected to cap the pull-back in the pair and lead to a probable rotation back lower.
However, after three Referendum polls over the weekend showed a substantial lead for the ‘Remain’ campaign, sterling gained a boost, which resulted in a gap higher on Monday morning, with the market opening at 1.8593, a full 69 hundredths of a cent above the 1.8519 Friday close.
“The market essentially jumped right over the 50-day,” remarked a source close to the FX markets.
The pair has now also surpassed the 61.8% Fibonacci retracement of the previous move lower, at 1.8810, a level where prices in a correction often rotate.
The level is linked to the mysterious ‘Golden Mean’ or ‘Golden Ratio’ as it is also known, a ratio which was discovered by the 12th century Mathematician Leonardo Fibonacci to describe the rate of growth of rabbit populations.
The monthly pivot, or PP as it is annotated is at almost the same level as 61.8%, reinforcing the point as a resistance level. Monthly pivots are used by traders to open orders counter to the prevalent trend, thus stalling the rally in its tracks.
The pair is currently trading slightly above these levels, at 1.8843, however, this is not a sign it has definitively breached them.
For confirmation of an upside break an move above 1.9000 would be required, with the next target from there at the 1.9200 level just below the 1.9303 highs.
There is a possibility this level will now hold and the pair will fall back down and fill the gap, with a move below the 1.8560 falling to 1.8526 in order to close the gap.
Wednesday's Retail Sales may provide the impetus for a rally in the Canadian side of the pair as the pound is likely to be subdued in the 24-hourse before the referendum.
This would result in a fall in GBP/CAD pair, such as described above in the recommendation to short the pair in anticipation of the gap filling.
Core Retail Sales in April, which are forecast to be released on Wednesday June 22 are forecast to show a 0.6% rise from a -0.3% previous reading.
Retail Sales may give important clues about second quarter growth, according to NBF economics, who estimate a 0.9% result, which is much higher than the 0.6% consensus estimate.
TD Securities also expected a higher-than-forecast result, and point out this will be one of the last data releases before the expected growth-hit from the Alberta wildfires:
“A collection of factors including strong auto sales and rising prices at the pump support TD's above consensus forecast for a 1.2% m/m increase in April retail sales. This will be one of the last data points ahead of the disruption to growth caused by the wildfires in Northern Alberta”