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GBP/CAD's sharp reversal wipes out last week's gains, pointing to deeper losses ahead.
The GBP/CAD exchange rate has performed a sharp about-turn that sets it up for further losses.
Last week we reported on an impressive recovery in GBP/CAD that followed the midweek Bank of Canada policy decision, which turned out to be more 'dovish' than the markets had anticipated.
Fast forward two trading sessions and those gains have been eviscerated in a brutal reversal that will have burnt anyone willing to bet that a recovery was underway.
Interestingly, CAD strength is at odds with the performance in other fellow 'commodity' dollars; the NZD and AUD in particular.
Those two antipodean currencies are under pressure against the pound, so we're definitely looking at a clear instance of CAD outperformance.
The casual observer would say CAD is running ahead of the pack because Canada is an oil exporter, and the current surge in prices is therefore beneficial.
GBP/CAD has snapped lower following an ill-fated recovery attempt.
Some analysts are, however, quick to point out that CAD's responsiveness to oil has diminished, and that this wouldn't be the whole story.
Whatever the case, the current period defined by the crisis in the Persian Gulf has been kind to the Canadian Dollar.
The dollar's strength is also helping, as we have noted over the past year that Canadian dollar performance often goes hand-in-hand with that of Canada's southern neighbour. And the U.S. dollar is still the preferred currency in the current environment, meaning that last week's post-BoC selloff was probably never going to last.
GBP/CAD is now targeting a retreat back to the graphical support zone at 1.82, which has provided the bulk of support to the pair during the Gulf crisis. Forays below here to 1.8150 and then 1.81 are also possible.
For now, we would be wary of calling anything lower, particularly given the two-way risks regarding the war: Trump can only win the war if he escalates significantly, meaning energy market dynamics would get a whole lot worse before they get better.
Here, GBP/CAD would plumb new multi-month lows.
He might not have the stomach for that, which could soon become clear, meaning a negotiated settlement with Iran becomes more likely.
Here, GBP/CAD would rapidly recover.