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The pound is likely to test range lows at 1.8326 against the Canadian dollar in the coming week.
The pound to Canadian dollar exchange rate (GBP/CAD) dropped in dramatic fashion Friday after Canada impressed with an above-consensus jobs reading.
Those data - that included a headline gain of 53.6K jobs - cemented the belief the Bank of Canada will hold rates unchanged on Wednesday.
Indeed, it's that midweek policy decision that forms the highlight of the coming week for CAD.
Following the labour market report, GBP/CAD dropped from a high at 1.8629 to 1.8419, and in doing so sliced through two major exponential moving averages (EMA) - the 21-day and 55-day.
This confirms that near-term directionality has turned lower, and is why we are forecasting lower levels in GBP/CAD this week.
To be sure, the pair is stuck within a tight range defined by 1.8650 at the top and 1.8326 at the bottom.
The range has held since late October and we are not yet quite convinced that the pair is ready to break below the 1.8326 lower-bound of the range.
As mentioned, it's all eyes on the Bank of Canada (BoC) this week, where interest rates are to be kept unchanged.
Markets don't see much action from the BoC for an extended period, so the central bank shouldn't upset the apple cart for CAD bulls.
"The December BoC already looked like a comfortable hold heading into the data, and while stronger labour market conditions could see the BoC put more emphasis on inflation risks, we still look for them to stay on hold at 2.25% through next year," says TD Securities.
Should the BoC remain on hold, CAD can remain well supported.
At the same time, the Bank of England could push through two further rate reductions by April of 2026. This direction of travel naturally lends itself to a weaker GBP/CAD from here.
That being said, with two cuts already baked into the GBP/CAD price, downside should be relatively limited and we're not convinced there's enough in the rates story at present to trigger a convincing break lower in GBP/CAD.