The GBP/CAD exchange rate has recovered above a major support level as oil prices take a tumble at the start of the new week. Has the worst now passed for the pair?
A negative start to the week for the Canadian dollar comes after a not wholly unsurprising failure by OPEC and Russia to agree an oil production freeze to counter the global supply glut and buoy prices.
The blame lies with Saudi Arabia which maintains its insistence that regional rival and non-attendee Iran adheres to any plan despite the latter rejecting the idea as it pumps at full pelt to recover from years of sanctions.
Watch for renewed oil price volatility, with the next major OPEC event not being until the cartel’s semi-annual Vienna meeting in June.
Also watch for a decidedly less assured Canadian dollar which has fallen sharply across the board.
Where Next for the GBP to CAD?
Given that the pair is already in an entrenched medium-term down-trend it is not difficult to see how it could go down even further.
Once the impediment present by the S2 pivot is overcome the way will open up to the next target to the downside at 1.7800.
Confirmation of a definitive break lower would come from a move below 1.7990.
Scotiabank’s technical brain, Shaun Osborne, also has a bearish view of the pair:
“GBPCAD retains a weak technical undertone,” he remarked in recent note, “we look for resistance intraday at 1.8265 (consolidation base, now resistance) and continue to think that near-term risks are tilted towards a push down to the 1.78/1.80 range.”
Even the bearish oscillators add to the weight of evidence biasing the outlook to more downside:
“Note that trend strength oscillators remain aligned bearishly across short, medium and longer-term timeframes. This usually implies a sustained trend (lower, in this case) and limited potential for countertrend corrections.”
Data Hot Spots in the Week Ahead
In Canada, markets will be watching Foreign Securities Purchases (March) data out on Monday April 18 - the previous result showed a net positive of 13.1bn in February.
Wednesday the 20th sees the release of Wholesale Sales (mom) February.
The main releases come on Friday, when inflation data for March comes out, as well as Retail Sales.
It appears the general market consensus was that the Bank of Canada (BOC) was relatively upbeat in its outlook at its meeting earlier this week. Indeed, they raised growth forecasts for 2016, although also reducing by a basis point their expectations for 2017.
The recently elected Liberal government has supported the outlook for growth with a pro-stimulus fiscal budget which expected to see 11.6bn dollar invested in the economy over the year.
Many analysts have argued this is likely to be positive for the Canadian dollar, as it will take the pressure off the BOC to stimulate the economy.
The positive tone of the recent BOC meeting appears to be proving this is the case, at least so far.