GBP/CAD – Headed to 1.73

GBP/CAD – Headed to 1.73

GBP/CAD – Headed to 1.73

Tomorrow is a big day for the British pound. Back in July, U.K. policymakers made their plans to ease in August abundantly clear and now that the time has come, sterling has been surprisingly stable. By giving investors sufficient warning, the market had the opportunity to completely discount a 25bp rate cut and the question now is if the BoE will do more. They could cut interest rates by 50bp or they could combine a quarter point cut with renewed bond buying. Given the recent stability of U.K. financial markets, we feel that the Bank of England doesn’t need to send a strong message to the market right now outside of a 25bp rate cut and a stern warning of more easing in the coming months. If we are right, we could see a bigger short squeeze in GBP/USD that will allow investors to reset their short positions at higher levels. The U.K. is not out of the woods, as growth will only slow further in the coming months / years because the U.K. government is simply delaying the inevitable. If they cut by 50bp or restart their bond buying program, sterling will fall quickly and aggressively. The greatest losses could be against the Canadian dollar which has performed extremely well thanks to the uptick in oil prices. $40 appears to a natural bottom with mixed inventory data supporting the move.

Technically, GBP/CAD failed right around 1.7500 today and appears poised for a sharper decline to 1.73 and possibly even 1.7200, where we have the 61.8% Fibonacci retracement of the 2010 to 2014 rally. Resistance is up at 1.7500

Chart Of The Day

Leave a Comment

Your email address will not be published. Required fields are marked *