Image © Adobe Images
The Pound faces a significant technical barrier in its trade against the Canadian Dollar.
The Pound to Canadian Dollar exchange rate (GBP/CAD) has risen to the almighty resistance zone that has stymied rallies on four occasions already in 2025, raising the question of whether the fifth attempt will see the barrier crumble.
As the daily chart below shows, resistance starts at approximately 1.8698, extending to 1.8742 and then the 2025 high at 1.8830.
The exchange rate has failed in this zone on four previous rally attempts, confirming it to be a formidable barrier, and we suspect there's simply not enough justification on either the GBP or CAD side of the GBP/CAD equation to justify a breach.
Given this, we think the market will soon find the easiest route forward is to retreat back into the cocoon of the 2025 range.
There are three reasons to justify this:
Firstly, the GBP is struggling and there is not enough idiosyncratic strength in this currency to drive the breakthrough, with Sterling struggling under the weight of ongoing fiscal uncertainty that is likely to grow ahead of the November 26 budget which should be another tax bonanza.
Secondly, a lot of bad news was injected into the CAD following last week's poor local jobs report that saw markets price in an additional interest rate cut at the Bank of Canada.
With expectations for further cuts already elevated, it's hard to see where fresh CAD-negative impetus would come from in a week that will be relatively quiet on the Canadian front.
Thirdly, GBP/CAD is closely tracking GBP/USD, meaning we need to see a decent USD drawdown to help lift GBP/CAD. Last week's U.S. jobs reports drove some USD weakness but upside potential looks relatively contained for now.
There are some U.S. inflation reports due this week, but with the market already so optimistic about the likelihood of accelerated Federal Reserve easing, risks are no longer two-way heading into the releases.
Wednesday's PPI report will give an initial taster ahead of Thursday's CPI inflation data.
Should inflation beat expectations (2.9% is expected for the headline CPI report), then the Dollar can recover as markets realise the Fed can't cut as much as the market currently expects, for risk of boosting inflation further.
This sets us up for a potential USD recovery that would drag GBP/CAD lower.