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The British pound currency remains under pressure against the Canadian dollar as the early year upside move in the pair continues to unravel. Yesterday’s dovish Bank of England also provided more reasons to be bearish towards the British pound in the short-term.
Worryingly the British pound also took a hit against other major currencies after the BoE policy statement, such as the euro and Swiss franc, which has been underperforming the Canadian dollar recently.
Therefore, a strong currency like the Canadian dollar could be traders preferred currency of choice to buy against the British pound. In currency trading, playing strength against weakness is fundamental.
Traders and investors are starting to pay close attention to global central banks for hints about a possible tightening of fiscal policy. Surprisingly, only the Bank of Japan have added flexibility in their approach since the pandemic.
Central banks such as the Bank of Canada are currently resolute in their approach to adding support from monetary stimulus, however, a change in language could be forthcoming if the jobs market continues to run hot.
On the other side of the pond, the United Kingdom economy still has a lot more uncertainty surrounding it. Traders and investors will also be acutely aware that Canada has support from the oil industry, and benefits from strength in the US economy.
The Bank of England sounded decided bearish yesterday as they noted “The outlook for the economy, and particularly the relative movement in demand and supply during the recovery from the pandemic, remains unusually uncertain. It continues to depend on the evolution of the pandemic, measures taken to protect public health, and how households, businesses and financial markets respond to these developments.”
Touching upon stimulus and inflation the central bank added “The MPC will continue to monitor the situation closely. If the outlook for inflation weakens, the Committee stands ready to take whatever additional action is necessary to achieve its remit.”
Market participants therefore have to consider that the GBPCAD pair is fundamentally challenged going into the next quarter, with the technicals pointing towards a possible decline towards the 1.7000 price zone.
According to the ActivTrader Market Sentiment tool some 77 percent of traders are bullish towards the GBCAD pair. Traders remains on the wrong side of the market at the moment, It is worth noting that trading extreme sentiment has proven to be wise, and that such a one-way sentiment skew probably means more short-term losses for this pair.
GBPCAD Short-term Technical Analysis
Looking at the four-hour time frame a bearish head and shoulders pattern is currently in play and is pointing towards an eventual drop towards the 1.7000 support zone.
Traders should note that a bearish breakout remains in play while the price trades below the 1.7470 level. According to the Ichimoku indicator on the mentioned time frame the GBPCAD pair will have cleared all forms of short-term support once the 1.7300 support level is breached.
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GBPCAD Medium-term Technical Analysis
According to the daily time frame the GBPCAD pair is trapped inside a large triangle pattern between the 1.7000 and 1.7880 levels. A major breakout should take place once the pair finally breaks from this large price range.
The GBPCAD pair has also been consolidating around its key 200-day moving average. Bulls have been defending this key area. The pair has managed to hold above its 200-day moving average since December last year.
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