Kicking off the new week with this textbook rally in GBP/CAD. With Brexit headlines still kicking and economic/political events for the Loonie in the works, this pair could see more volatility and opportunities in the next session or two.
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Fresh Market Headlines & Economic Data:
- EU considers Brexit extension as Boris Johnson pushes for a vote on his deal
- China’s economic growth could fall below 6% in 2020, says the IMF
- U.S. Commerce chief: U.S.-China trade deal doesn’t need to be inked next month
- PM sends letter to Brussels seeking further delay
- No-deal Brexit risk still remains, UK Brexit minister Barclay says
- German producer prices increases to 104.6 in Sept vs. 104.5 in Aug.
- German economy may have contracted again in third quarter: Bundesbank
- New Zealand credit card spending up +4.8% y/y; -0.1% m/m
- Japan’s extended exports slump could push BOJ to ease next week
- Japan Indices of All Industry Activity stays at 106.2 in Aug. vs. Jul.
Upcoming Potential Catalysts on the Forex Calendar:
- Canada Federal Elections (All day)
- U.K. Public sector net borrowing at 9:30 am GMT (Oct. 21)
- ECB publishes Bank Lending Survey at 10:00 am GMT (Oct. 21)
- German Bundesbank Monthly Report at 11:00 GMT (Oct. 21)
- Canada Retail sales at 1:30 pm GMT (Oct. 21)
- U.S. Existing home sales & Richmond Manufacturing index at 3:00 pm GMT (Oct. 21)
What to Watch: GBP/CAD
On the one hour chart above, we can see GBP/CAD in a simple uptrend over the past week, but it seems to have found resistance around the 1.7050 minor psychological level. So, there’s basically two technical setups in the works here, an upside triangle breakout and bounce off the bottom of a rising channel. Both are bullish leaning setups with pretty good odds of success and potential R:R ratios.
Looking forward, volatility should remain active for both currencies with the U.K. and EU quickly approaching the October 31st withdrawal deadline, making every Brexit headline a likely mover for Sterling. On the other side, Canada is having its federal elections today and could be a mover for the Loonie, although it is unlikely. We’ve also got the latest Canadian retail sales data coming in the Tuesday morning U.S. session, which will give us a hint on how consumers are doing lately.
If you’re a bull on GBP/CAD, the technicals are in your favor, and if we continue to see more Brexit headlines that push down the odds of a no-deal Brexit, Sterling could have further legs to move to the upside. As far as the Loonie, if we see a situation where Canada will end up with a more unstable government and/or we see weak retail sales data, pressure could come to the Loonie short-term. In this scenario, a break above the 1.7050 handle could be a signal for momentum players to jump in, and with the next near-term resistance being around 300 pips away, it’s a very favorable trade for the bulls. Waiting for a pullback is also an entry strategy to consider for the more conservative types, and a retest of the rising ‘lows’ (around 1.6900 – 1.6950) is where we may see support.
If you’re a bear on GBP/CAD, signs of a no-deal Brexit rising and/or a strong retail sales number from Canada / a more stable government outcome from the Canadian elections could bring on GBP/CAD bears. In that case, a break below the rising ‘lows’ pattern is the signal to watch out for, which could draw in swing traders to gun the previous support area around 1.6800 – 1.6850, which is well within the daily ATR of around 180 – 190 pips.