Image © Bank of Canada
The pound-Canadian dollar is set to retain an incredibly tight trading range in the coming days as we await a trigger to end this phase of consolidation.
Looking at the daily chart shows the pair has been holding court just above 1.8436, with no daily closes below here since the first week of April.
Since April 20, the pair has seen volatility almost entirely evaporate: advances above 1.85 have been sold into, while dips have tended not to venture beyond 1.84.
This is a mere 100 pip range that speaks of a suppressed pair that is awaiting a new trigger.
It's futile for us to predict what that trigger looks like or in which direction the resolution to the consolidation will be.
But, if pushed, we would suggest risks are to the downside as this Thursday's UK local and devolved administration elections will steal the focus for GBP traders, as Keir Starmer's Labour Party is set to lose heavily.
Those watching the pound should not worry too much about the details of the vote; just know that Labour's defeat will see Starmer come under pressure from potential rivals.
"The PM’s future will be the primary, if not only, issue that financial markets," says Michael Brown, strategist at Pepperstone. "Many, including me, have been working on the assumption that a Labour leadership challenge is likely in the aftermath of 7th May. It is logical that not only would a prospective leader want the current leader to ‘own’ a disaster at the ballot box, but also that such a disaster would be a logical catalyst for those seeking a change to ‘strike while the iron’s hot’."
Analysts point out that the risk to the pound from all of this is that a left-leaning replacement takes power in the UK.
Alternatively, Starmer might feel his only shot at survival is lurching leftward to placate the supporters of potential rivals.
In both instances, pressure on UK bond yields could rise, and that will weigh on the pound.
But back to GBP/CAD: these talking points are not likely to bother us in the coming days, and it won't be until next week that we hear rumours of potential efforts to replace the PM.