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Over the past few weeks, GBP/CAD has fallen approximately 400 pips from its high of 1.8650. This move was driven by the combination of sterling weakness and loonie strength. The British pound was driven lower by back-to-back disappointments in PMIs. In contrast, the Canadian dollar found a bottom in late March and extended its gains on Friday after stronger employment. Given the drop in the manufacturing PMI index, this week’s industrial production and the visible trade balance reports could surprise to the downside adding pressure on the currency pair. At the same, the Canadian dollar ended Monday’s trade at its highs versus the greenback and could extend its gains as the week progresses.
Taking a look at the daily chart of GBP/CAD, 1.82 is clearly an important support level for the pair. It tried unsuccessfully to close below this price in mid February and tested it again last week. Friday’s low of 1.8167 is now the key support level. If GBP/CAD breaks below this level, the sell-off can extend as far as 1.7990. GBP/CAD needs to close above 1.83 to shake off the downside momentum and to position for a stronger move higher.