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A rapid rise calls for a consolidative move in the Pound to Canadian Dollar exchange rate (GBP/CAD).
GBP/CAD leapt to a high of 1.8737 late last week following an uninterrupted run of 11 straight daily gains; the last time it achieved this was during the impressive run that started in late February and ended in early March.
That impulse took GBP/CAD to new multi-year highs, from where it carved out a broad sideways trending range. In this last week we saw the pair break above the upper end of that range, raising the odds that a new impulse higher was starting.
But there are a couple of observations to consider:
1) previous peeks above here have all ultimately failed and
2) the recent rally might merely be an upmove within the 2025 range that has simply overshot.
If this were to be the case, then gravity would pull GBPCAD lower in the coming days.
Also, the Relative Strength Index (RSI) rose to hit 70 last week, which triggered an overbought scenario whereby a correction or consolidation was required.
A retreat to the nine-day exponential moving average (EMA), currently at 1.8597, is possible in the coming days as overbought conditions unwind.
However, if the pair can stay above the nine-day EMA the setup is constructive and we would look for the rally to resume as weakness is bought into.
Much will depend on the U.S. Dollar from here, as GBP/USD and GBP/CAD are closely aligned.
Should the Dollar falter in the wake of Jerome Powell's address to the Jackson Hole Economic Symposium, then further GBP/CAD upside towards the end of the week is likely.
Federal Reserve Chair Jerome Powell speaks at the conference on Friday, and the assumption is that he will verify market bets for a 25 basis point interest rate hike on account of cooling U.S. labour markets.
However, he will reject hopes for a 50bp move on account of still-high inflation, which could shore up the Dollar and GBP/CAD.
Jackson Hole has a history of being significant for markets as the Fed Chair has often used the address to signal shifts in policy.
"At last year’s Jackson Hole Economic Symposium, Fed Chair Powell sent a clear signal that the time had arrived to start lowering rates which was followed by a larger 50bps rate cut at the September FOMC meeting," says a currency note from MUFG Bank, out Monday.
Last year Powell said "the time has come for policy to adjust. The direction of travel is clear" with inflation on a "sustainable path" toward their target.
"At this month’s Jackson Hole Economic Symposium market participants will be listening closely to see if Chair Powell validates pricing for rate cuts to resume next month. The risk is that Chair Powell refrains from providing a clear signal over the timing of the next rate cut giving the Fed more time to continue assessing incoming data before the September FOMC meeting. It could help to dampen downward pressure on the US dollar in the near-term," says MUFG.
A USD rebound would weigh on GBP/CAD.
However, analysts at ING Bank think the address will lean dovish on the Dollar.
"Benign conditions look set to continue, given a quiet week for data and focus on Friday's Jackson Hole symposium – presumed dovish. Expect the dollar to stay generally offered," says Chris Turner, head of FX analysis at ING Bank N.V.
Here, USD weakness would help GBP/CAD higher again.