Forex Weekly Report

Although there are fundamental signs that GBP/CAD may be due a correction lower we are attracted to this pair predominantly because the two components of the cross, USD/CAD and GBP/USD, are in technical positions that are suggestive of corrective phases that should ultimately act to drive GBP/CAD lower. The technical backdrop is discussed below. From an economic surprise perspective we also see scope for fewer upside surprises from UK releases, although we remain constructive on the UK economy generally, looking for stability as opposed to continued revisions higher in GDP. However, Canada may be in a position where economic surprises could begin to show more upside. Initial signs of this may be the pick up in the Ivey purchasing managers index as shown in the chart to the immediate right. In any case the anticipation of a corrective phase is not easy to justify fundamentally as it is a movement which is ultimately contrary to the larger trend, which in this case is higher. The larger trend is the one that is typically bolstered by economic releases.