GBP/CAD Shows Little Change Ahead Of Canada’s Trade Balance

On Friday, the British Pound (GBP) pared its losses against most of its major competitors with markets gauging that the recent sell-off was overdone.

Heightened ‘Brexit’ risk saw sterling slump across the board on Wednesday morning, as the latest ICM telephone poll placed the ‘Leave’ camp ahead, prompting investors to move away from the currency amidst a fresh bout of referendum uncertainty.

The recovery in sterling does however come as some of the key pairs confirm the pound has reached levels which are likely to obstruct further weakness. The rebound in sterling comes despite the release of weaker Construction PMI for May. Although the May Manufacturing PMI beat expectations at 50.1, Construction PMI came out at 51.2 when markets had been expecting 52.0, indicating the continued slowdown pressures weighing on the UK economy.

At 3:30 am EDT today, UK Services PMI was released. The report showed a better than expected, but still modest bounce in the Services PMI to 53.5 in May (from 52.3 the previous month). Taken together with the other PMIs released earlier in the week, it would be further confirmation that Q2 GDP growth will be weaker than Q1’s. The Pound will remain a generally unstable option for investors ahead of the EU membership referendum.

Demand for the Canadian dollar exchange rates (CAD) was also nearly unchanged  today as oil prices held above $50 a barrel on Friday, following a decline in U.S. oil inventories that offset a non-eventful OPEC meeting. On Thursday, the Organization of the Petroleum Exporting Countries (OPEC) failed to agree to a clear oil-output strategy as Iran insisted on raising production to regain market share lost during years of sanctions. Later on the same day, oil prices found support again in U.S. Energy Information Administration’s announcement of a fall of 1.4 million barrels in crude inventories, the third weekly decline in a row.

The next key Canadian economic data due later today will be May Trade Balance number, which is forecast to post a deficit of 2.5 billion. Traders are waiting for some clues about the health of the country’s export-led economic recovery to predict BOC’s next move.

gbpcad d1

Fig. GBPCAD D1 Technical Chart

After plunging wildly for two consecutive days, GBP/CAD has started to regain some momentum and is currently settling at 1.88720. ADX of 28.03, along with DI- staying above DI+, suggests a bearish market, although the three lines are getting closer indicating a weaker trend. The Stochastic shows that the pair is in the oversold zone, the %K line is crossing the %D line supporting the signs of a pull back.

Trade suggestion

Buy at 1.88710, SL at 1.86464, TP at 1.90742

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