1. The Brexit story is negative for sterling.
The UK - EU negotiators stuck in the middle of nowhere again. Some positive comments by officials from both sides gave cable bulls a hope that the long-lasting Brexit uncertainty would come to an end soon. However, the lack of progress in crucial issues like the Irish border and trade conditions forced politicians to offer an intermediate proposition of a longer transition period for the United Kingdom leaving the European Union. Another year of uncertainty is definitely not the best scenario for stagnating British economy which delays its growth due to the unresolved concerns.
2. The latest British economic data disappointed investors.
The only positive news from the latest economic reports was the pick up of average earnings in the UK. However, that fact did not influence the consumer spending and inflation. As the result, the Gross Domestic Product stagnates and negative trade balance widens its surplus. Bank of England Monetary Policy Committee Governor Carney gave a clear signal to the market players that they should not expect any changes in the soft monetary policy in the UK for the nearest future, at least until the Brexit story will over, as it remains the main concern for the regulator.
3. The progress in the U.S.-Mexico-Canada trade deal is positive for the Canadian dollar.
The Canadian economy depends largely on the export to the United States. This is the main reason why both countries’ economic growth is related to each other. Canada will keep growing until the U.S. grows and what do we see in the U.S. is nothing but robust and sustainable economic expansion never seen in the last seven years. Exports volume is rising in Canada, creating additional workplaces and corporate profits. The unemployment rate stable decline, average earnings and spending growth, acceleration in demand for mortgage loans - all these factors point to further strengthening.
4. Bank of Canada is in the tightening cycle.
BoC hiked the interest rates one more time this year on Wednesday. The current nominal borrowing cost in the country reached 1.75% and it is approaching normal levels, according to the BoC statement followed the rate decision. Although there were some doubts among investors regarding the rate hike in October, the base scenario remains the same, and most of the analysts expect more rate hikes in 2019. The interest rates differential between Canada and Britain enlarged, creating an additional demand for Loonie from the fixed-income market and borrowed capital flows. Bank of Canada Governor Poloz confirmed the regulator’s course for more tightening, stating that the economy does not need stimulus any more.
5. Oil price is the wild card.
Although the price of WTI Crude Oil has been declining recently, most of the analysts agree that it is nothing but technical correction. The black gold traders took profits due to the tough month in U.S. equities which struggled due to the sell-off in Treasuries and geopolitical concerns. Add here the third-quarter earnings and long-term overbought conditions, and you will get the retracement as the result. The risk aversion had its influence on the commodities market as well. WTI Crude Oil sold-off also due to an unexpected spike in U.S. inventories and worldwide demand concerns. Nevertheless, the yearly uptrend is obvious for the price of oil, and it would be an additional supporting factor for the export-oriented Canadian economy, once the oil gets back to growth.
6. The weekly long-term technical chart is bearish for GBP/CAD.
The chart below has a clear descending triangle with the base at 1.5976 which is the static support representing the lowest rates in October 2016, January 2017 and September 2017. The latest bullish retracement was limited by the Simple Moving Average with 55 weeks period (yearly average). The bulls’ weakness turns into the bears’ strength as the result of the failed test of resistance. The fast Relative Strength Index oscillator has a strong sell signal - the bounce which failed to break through the 50% level, dividing the bullish and the bearish sentiment. Moreover, the indicator came off its oversold levels, leaving the room for more bearish achievements.
7. GBP/CAD is also bearish on the mid-term daily chart, according to the technical analysis.
Ichimoku Cloud indicator has modified settings to get the wider scope and less fake signals (13, 34, 55, 34). The span itself is bearish, signalling the current downside trend to continue. The recent bullish retracement is the false breakout as there is not the bullish continuation, and the price turned back into the cloud after that. Moreover, additional confirmation comes from the price action this week: support lines and the bottom range of the cloud did not hold the price from further weakness. As the result, the descending median line has been broken as well. That lines used to work as the resistance during the downtrend in 2018, and it keeps working as the magnetic line, attracting daily average prices.
Summarizing all above, we would recommend buying PUT options for GBP/CAD currency pair. The best profitability depends on the account balance deepness and trading strategy. Long-term binary options traders should consider sell-and-hold approach while short-term traders with small accounts should watch intraday upside whipsaws for the entry levels intraday. The best time to trade on GBP/CAD is the New York opening when both European and North American trading sessions are still active (01:30 PM - 04:00 PM GMT).