GBPCAD suffered a sharp selloff yesterday, following reports indicating that the BOE isn’t as hawkish as expected. The Inflation Report and MPC meeting minutes suggested that the central bank is not that close to hiking interest rates as Governor Carney previously hinted.
With that, GBPCAD fell from its recent highs near the 2.0600 handle to the 2.0300 area, which lines up with the 61.8% Fibonacci retracement level. This also lines up with a former resistance level, which might now hold as support. Price is currently trading below the 200 SMA, suggesting a bit of downside pressure, but the short-term SMA is above the long-term SMA so the longer-term uptrend could stay intact.
Meanwhile, RSI is reflecting oversold conditions, which means that a bounce is likely to take place. Stochastic has already been climbing and is near the overbought area, which means that pound sellers could regain strength soon. A bounce off the 2.0300 level could lead to a move back up to 2.0600 while a break below the 61.8% Fib could lead to losses until the 2.0100 mark.
GBPCAD Fundamental Factors
The disappointment over the UK events yesterday is currently weighing on the pound, as only one MPC member voted to hike rates as opposed to market expectations of seeing two to three members calling for tightening. In addition, the Inflation Report contained downgrades on employment and inflation estimates.
On a more upbeat note, the Inflation Report also showed an upgrade in the overall growth forecast for this year, along with upward revisions on earnings and business investment. Carney went on to say that any policy adjustments will be data-dependent and that it is difficult to predict when their first rate hike might be announced.
As for the Canadian dollar, the upcoming jobs release should pose a significant event risk, along with the Ivey PMI. Stronger than expected data could mean more declines for GBPCAD while weak figures could favor a bounce.
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