The Loonie’s run against Sterling may come to a pause as GBP/CAD approaches a major support area. Is a bounce coming or will support break and turn into selloff?
Major Support Retest on GBP/CAD?
The Canadian dollar has been on a run against the major currencies since mid-April, sparked by hints from the Bank of Canada may be the first to taper pandemic stimulus measures. That includes its run against the British pound, which has taken the pair down from an April peak of right under the 1.7600 handle to its recent swing low around 1.6950.
But that move may be shaken up this week with the latest monetary policy statement coming from the Bank of England tomorrow, and the monthly employment update from Canada on Friday. That means volatility could pick up very soon for GBP/CAD, as well as a potential trend change.
Expectations are for the Bank of England to hold monetary policy as-is for now, but some analysts think we may get hints that the BOE may reduce their purchases of gilts and/or a shift in their economic outlook to a rosier one. As far as the Canadian jobs numbers, the forecast is that April’s numbers will disappoint relative to the previous reads, which could me a pullback in Loonie strength may be in the cards short-term.
If the above expectations do play out this week, then a bounce at the major support area around 1.6900 is a strong possibility. In this scenario, watch out for bullish reversal candles to form between the 1.7000 handle down to 1.6900 before considering a long position. This would be a great longer-term swing setup to go long, especially if the BOE actually tapers their stimulus measures in this week’s meeting.
If we see the opposite scenario where the BOE signals continued caution / slashing their growth forecasts, and if the Canadian jobs data bucks expectations with a very positive read, then look out for the downtrend to continue in GBP/CAD. But with a major support area just ahead, it makes sense to see if the volatility takes GBP/CAD higher to a better selling point, like around the 1.7200 – 1.7300 area where we can see support-turn-resistance potential on the four hour chart above.
What do you all think? Will the top tier economic events keep the sell off going? Or will the events surprise us and lead to choppy price action in the short-term? Let me know in the comments section below!
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