Talking Points:
- Outstanding UK Economic Data
- Divergent BoE/BoC Monetary Policies
- Bullish Technical Case for GBP/CAD
GBPCAD can be a challenging pair to trade, but its current set-up is extremely attractive to longer-term macro traders. The Bank of England (BoE) is toeing the line between neutral and hawkish monetary policy, and the vast majority of recent UK data has been outstanding, with the clear bright spot being the latest UK labor market numbers.
UK jobless claims recently posted their strongest reading in a dozen years, and have now declined for 12 consecutive months and beaten expectations for six straight months. UK unemployment data is especially significant due to the impact on the UK’s quantitative easing (QE) program.
See also: A UK Labor Report 12 Years in the Making
The Bank of Canada (BoC), on the other hand, remains firmly in the neutral policy camp, and the most recent employment report from Canada suggests the Bank will remain there for some time.
While the Canadian unemployment rate surprisingly fell below 7.0%, it did so despite a weaker participation rate as more and more unemployed leave the labor force. This is usually a sign of frustration with the labor market and is not good news for Canada. Add to that weaker PMI figures and worse-than-expected building permits for this month and we get a picture of a stagnant Canadian economy.
Such a disparity between the nations’ economies and central bank policies means that we will be seeing interest rate expectations favor the British pound (GBP) over the Canadian dollar (CAD) going forward.
Bullish Technical Case for GBP/CAD
From a technical context, GBPCAD has been consolidating sideways since August 2010 after a significant decline. That consolidation came to an end earlier this fall, when the pair broke higher on GBP strength and CAD neutrality, and that trend looks likely to continue in the medium to long term.
Guest Commentary: GBP/CAD Upward Momentum to Continue
The major support level for GBPCAD is now 1.6250, while the move looks to target at least 1.92 over the coming months. This is an attractive set-up for long-term traders looking to limit their exposure to the US dollar (USD).
By Liam McMahon, currency strategist, GlobalFxClub.com