This simple technical setup on GBP/CAD is a pair to watch with a batch of top tier U.K. data ahead and volatility already picking up for the Loonie.
GBP/CAD Trade Idea
This pair was on a rocket ride higher early in December before hitting the top of the ever-so-slight rising channel pattern that’s been forming since around August and September of last year.
Price has since dropped quickly to retest the bottom of the channel around the 1.6800 handle, where it seems like it’s about to find support.
It’s a little too early to tell whether or not the rising ‘lows’ can be called support just yet, especially with stochastic not quite fully forming a bottom in oversold territory. So, I’m in watch mode, especially given the full economic calendar for the U.K. and Canada in January. Most notable is the CPI data from both countries this week, and employment data from the U.K. next week that should ignite a little bit of action for the pair.
Looking beyond the data, today’s Bank of Canada’s monetary policy meeting also adds fuel to a potential pickup in volatility after they leave rates unchanged, but downshifted its outlook on GDP thanks in part to the fall in oil prices. In reaction to the news, price action momentarily picked up for the Loonie but settled not to far away from its pre-event prices as we close out the session. Longer-term, the idea that interest rate changes will be data dependent (not automatic), and not likely to rise any time soon could have a bearish effect until we get to a fresh set of data next month.
But of course, it’s impossible to ignore what’s going on with Brexit negotiations when talking about Sterling pairs, which is leaning towards the negative side at the moment as Theresa May is forced to present a new Brexit plan if her proposal is rejected next week.
Although I’m leaning bullish because of the technical setup and downshift in BOC rate hike expectations, given the uncertainty with Brexit and the upcoming vote, I can’t really call a direction bias at the moment. I would rather wait for price action to settle above or below the bottom of the channel for a few daily bars before making a call after we see more data and developments with the Brexit deal.
So GBP/CAD is definitely a pair to play for a swing move given all of the potential catalysts and driving themes, but I’ll stay in watch mode for now, ready to pounce when everything lines up. What do you guys think? Jump in sooner rather than later?
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.