Looking for an Upside Break but Risking More Range Trading

– GBP / CAD expected to be between 1.7010 and 1.7209 next week.
– A daily close above 1.7175 offers 400 points up for GBP.
– Would trigger an inverse head and shoulder pattern on daily charts.
– GBP needs a risk recovery to get above 1.7175, but appetite is getting sour.

Image © Sterling Live

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The pound to Canadian dollar exchange rate performed strongly on Friday last week and may try to break out of its recent, suffocating narrow range in the coming days, despite the risk of stronger spread trading.

Sterling ended the week at the forefront after economic data questioned the perception of an economy lagging behind its rivals in the race for the coronavirus trough. The Brexit negotiations went nowhere, although the ongoing standstill was not enough to worry Sterling beyond Thursday.

Due to price movements, the pound to Canadian dollar exchange rate was still limited to an asphyxiating range that could continue in the coming days if risk appetite continues to sour, as some believe. Tensions between the United States and China are increasing and outbreaks of the second wave of coronaviruses in Spain, Japan, Hong Kong and other countries are attracting attention as the equity markets gradually weaken. All are a recipe for a possible correction from the US dollar, which has recently been punished for its own second wave.

"Trade tensions are increasing and the data raises doubts about the US economic recovery (Canada is inevitably highly exposed to the US economic problems)," said Francesco Pesole, strategist INGwho is looking for a range of $ 1.3340 to $ 1.35 / CAD this week. "CAD has been less congested in recent weeks compared to its peers AUD and NZD, China is less exposed, and its ongoing net short positioning seems to indicate a relatively limited downward trend."

GBP / CAD would trade between 1.7010 and Sunday's opening level around 1.7150 in a risk-averse market where GBP / USD tests support between 1.26 and 1.2660, while USD / CAD would trade on the next major resistance barrier looks just below 1.35. This would be a repeat of last week's range.

Above: The exchange rate from pound to Canadian dollar is displayed in daily intervals.

The pound to Canadian dollar exchange rate would trade between 1.7158 and 1.7209 in a risk-taking market where Sterling is testing against the greenback and USD / CAD at 1.33 and the high end of the Pesole price range at 1 , 3340 falls, though this result could be a game changer for Sterling.

"The 200-day MA appears to be slowing the GBP rise," said Juan Manuel Herrera, strategist at Scotiabankthe GBP / CAD rate. "We note that the GBP sideways movement in June / July may develop an inverse Head & Shoulders pattern – with the 1.7175 area effectively marking the bullish breakout point. The charting implies an upside potential of just over 400 pips on a clear move over the trigger of the clipping. "

Sterling could rise above 1.7175 in a risky market where the pound-to-dollar rate continued to celebrate the IHS Markit PMI signals of an economic thaw in July, with the UK manufacturing and barometer reading Service industry beyond that of its Eurozone and US counterparts. This would trigger the Scotiabank-marked inverse head and shoulders pattern and gains that imply a rally in the pound to Canadian dollar exchange rate up to 1.7575.

Above: CAD / USD rate at daily intervals next to GBP / USD (orange line).

However, a tentative third quarter recovery in the UK or neighboring countries would be jeopardized by another wave of corona viruses on mainland Europe, so the pound may need a new catalyst for the step above. Brexit negotiators are holding informal talks this week, although expectations of a breakthrough are slim. The next round of official talks begins on August 17th.

"Rising geopolitical tensions can cause the risk to continue over the next week. We believe that this would be a good opportunity to increase USD short positions given that priority should be given to restoring the virus and maintaining central bank liquidity "says Sarah Ying, strategist at CIBC Capital Markets. "U.S. DOLLAR/CAD There was a false breakout at the 1.3400 level although the trading range has been narrow at 1.3316-1.3716 since early June. Data is lacking until next week's GDP, so bandwidth is expected to continue. "

All risk currencies rose against the dollar last week, but the Canadian loonie cracked on Friday, and weakness could spread in the coming days if the Federal Reserve (fed) cannot revive the stock market rally on Wednesday at 7:00 p.m. Given the tensions between the US and China, coronavirus infection numbers and the Fed, markets are likely to depend on US and Canada GDP numbers due later in the week. Eurozone GDP data will also be released on Friday.

Above: USD / CAD exchange rate at daily intervals.

"We are often asked about the form of the path that we expect for real GDP or employment. Is it a" U ", a" V ", another letter? The incoming data increasingly indicate that the US is on The VW economy could end, of course without reference to a certain German car maker, "says Avery Shenfeld, chief economist at CIBC, Who expects an annualized US GDP decline of -36% and a recovery of + 3.9% in Canada in May? "The most informative data will be the June and second quarter GDP forecasts that we are likely to release along with the May figures. June is expected to have a good growth spurt, but the second quarter will still see an annualized decline of 42 % exhibit . "

US GDP will be released on Thursday at 1:30 p.m., and the consensus expects a -35% decline to follow the -5% decline in the third quarter, while Friday's consensus expects Canada's GDP in May in line with +3% forecast by Statistics Canada released on June 30th.

"We are sticking to our official second-quarter GDP growth forecast of -35.0% qoq," said economist Pooja Sriram Barclays. "We expect little new information from the FOMC meeting in July. The Fed's previous announcement has already sent the message that monetary policy is likely to be accommodative for some time, if not years, although the Fed is likely to take its assessment of the incoming Data in will improve In May and June, the increasing number of COVID-19 cases should continue to focus the committee on downside risk, potential labor market scarring and heightened uncertainty. "

Above: Great Britain. US and Eurozone PMI surveys and Barclays US and Eurozone GDP estimates expected this week.

(tagsToTranslate) CAD (t) Canadian dollar (t) exchange rate (t) forecast

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