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A solid start to September stabilises the GBP/CAD outlook.
The Pound to Canadian Dollar exchange rate (GBP/CAD) starts the new week and month with a solid gain linked to a rise in GBP/USD, underscoring that the Dollar will remain a key component of this particular Sterling exchange rate's performance in the coming days.
GBP/CAD spent the second half of August on the back foot, declining from the high at 1.8742, a level achieved on August 18 and then again on the 20th.
These highs followed a period of intense buying that left the pair looking overbought on short-term timeframes, which invited the need for a corrective pullback to shape up.
That pullback ensued through the final part of the month and the strong rebound seen on Monday, September 01 will send the signal that the pullback is in the process of completing.
Therefore, we are inclined to view recent weakness as being technically driven and not indicative of any significant shift in fundamentals.
Given this, the prospect for consolidation around the nine-day exponential moving average (EMA) at 1.8631 is high, and the preferred setup for the coming week is to look for oscillations around here ahead of a resumption higher.
Above: GBP/CAD at daily intervals.
If the pair can complete a close above the nine-day EMA, which is followed by a subsequent close above here on Tuesday, then our short-term forecast model turns bullish, and we would then anticipate a move to 1.8742.
However, because these conditions (GBP/CAD yet to register a close above the nine-day EMA) are yet to be met, we are not able to forecast such a move at this time.
Instead, our preference is for the aforementioned consolidation at 1.8631 as it looks as though that, at the very least, spot will close near the nine-day EMA and hug it closely in the near-term.
That being said, the best technical predictions are quickly overturned by events, and we have a busy week of U.S. and Canadian data to look forward to.
Monday's 0.40% gain for GBP/CAD is being driven by a GBP/USD move of a similar magnitude, confirming the North American bloc's weakness to be a main feature of FX market action at the start of the month.
If this behaviour holds, then where GBP/CAD ends the week will likely be determined by Friday's U.S. labour market data, which has the propensity to deliver notable moves in USD.
If payrolls undershoot the expected 78K the market looks for, then the USD will weaken as investors account for a softening economy and more by way of Federal Reserve rate cuts.
A spillover of this will be a weaker CAD, and a higher GBP/CAD.
Conversely, a stronger-than-expected payrolls figure would have the opposite effect, which would prompt GBP/CAD to potentially end the week at lower levels than where it started.
Keep in mind that Canada also releases employment data on the same day; however, only a significant deviation from the expected 10K increase in jobs would likely shift the domestic currency.
If the market undershoots, then further easing at the Bank of Canada becomes likely, which would have the traditional FX market effect of lowering CAD.