July 31, 2024 15:00 GMT
Bullish Conditions Prevailing for GBPCAD, 2021 Highs in Sight
FOREX
- Markets remain evenly split over whether the BOE will decide to cut rates on Thursday. Easing expectations have consistently been pushed back in 2024, and alongside an overall supportive backdrop for risk this year, high-beta GBP has remained one of the best performing G10 currencies. Strong sentiment has been reinforced by a relatively smooth post-election transition in the UK and this is reflected by indicative positioning data within the latest CFTC report.
- GBP has the highest net position as a percentage of open interest at 49.2%, which stands in stark contrast to the Canadian dollar (-51.2%), well evidenced by the strong bullish trend conditions in place for GBPCAD.
- Pressure on the Canadian dollar has been bolstered by the BOC cutting rates twice already this year and 2-year CA/UK yield differentials remaining in negative territory, currently at -33bps and bolstering the underlying trend for the cross.
- GBPCAD’s rally extended earlier this year on a break of key downtrend resistance in May, drawn from the 2018 highs. This line was then tested as support in June and the cross has since bounced roughly 3%. Exponential moving averages remain in a bull mode position.
- On the upside, 1.7887 and 1.8055 remain the most notable targets for the move, the 2021 and 2020 highs respectively. On the downside, initial support comes in at 1.7687, the 20-day EMA.
- Politics will remain the key risk to a significant GBP correction lower, with the UK’s October 30 budget likely to receive intense scrutiny as the new labour government attempts to shore up the nation’s finances.
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