The GBP/CAD pair is poised to meet an unfulfilled downside target after breaking below a trendline which has hugged its recovery from the flash crash lows. The OPEC meeting may prove the catalyst that pushes it lower.
GBP/CAD is trading at 1.6753
The meeting of the Organization for Petroleum Exporting Countries (OPEC) today (November 30) may provide a catalyst for a bounce in the Canadian Dollar (Loonie).
The Loonie is highly correlated to oil as it is Canada’s largest export.
OPEC are meeting to discuss a supply cap to raise the global price of oil amidst recent weakening which has seen the commodity plunge to over 50% of its previous value.
A move higher in the Loonie would translate into more downside for GBP/CAD, which has already shown weakness recently after breaking below a key chart level.
The break lower never fulfilled its potential and was prematurely curtailed by strong UK lending data which led an unexpected upswing in the pair.
However, the chart targets calculated from the initial break, at 1.64 and 1.63, are still very much on the radar and likely to be met at some point or other.
Reports are suggesting there is a high probability of OPEC agreeing a supply cap today.
This morning the Iraqi Oil minister said, “There will be an agreement today,” after arriving at an unofficial breakfast meeting at 7.00 (GMT), and the Iranian delegate said, “I’m optimistic”.
Their comments have already led to a substantial 3-5% rally in Crude Oil.
A move higher is likely to lead to a concomitant fall in GBP/CAD.
This would fall neatly in line with what technical analysts are saying.
Scotiabank’s Shaun Osborne, for example, said in a recent note on the pair that he advocated selling GBP rallies.
“We still rather view the GBP sell-off as incomplete at this point.
“The market has not been able to make a new cycle high, even via the rebound from the “flash crash” low, and the broader trend remains clearly bearish (via successively lower highs and lower lows).
“We prefer to sell GBPCAD rallies,” commented the analyst in a note.
We are also bearish, expecting the pair to eventually break down to 1.6350, which are the targets calculated from the break below the up trendline.
These targets correspond to the move prior to the break (x on the chart below) which is generally simulated by the follow-through after the break, particularly in terms of length.
We, therefore, see a break below the 1.6585 lows as confirming a move down to 1.6350.
The MACD indicator is crossing its signal line further signaling the likelihood of more bearishness.