GBP/CAD jumps as oil tumbles

<p>The GBP/CAD currency pair is one to watch over the next couple of days, for not only is it looking interesting from a technical point […]</p>

The GBP/CAD currency pair is one to watch over the next couple of days, for not only is it looking interesting from a technical point of view, but the fundamentals are in play too.

As Canada is a major oil exporter, its currency is influenced heavily by the price of the black stuff. Crude oil has plunged sharply in recent days on renewed worries about the excessive supply of oil. A nuclear agreement with Iran and the P5+1 looks imminent which could allow Tehran to produce more oil. Already, the OPEC is pumping more oil than at any time in the last three years.IfIran’s oil sanctions were lifted, the global supply glut could therefore increase further as the other OPEC members are in no mood to lose market share. Likewise, shale oil producers in North America and elsewhere will likely pump record amounts of oil for the same reason. Thus crude prices may have to fall further as investors take into account the expected rise in oil supply from Iran. This could be bad news for the Canadian dollar. Meanwhile the UK budget is due on Wednesday, which could have implications for the UK economy and in turn the pound. Sterling remains one of the strongest currencies in G10 and it could get another shot in the arm if the budget is deemed business-friendly.

From a technical point of view, the GBP/CAD is currently displaying a large bullish engulfing candle on its daily chart.  This particular candlestick formation points to a continuation in the underlying bullish trend, though it is worth mentioning that the day is not yet over so things could change. What makes this engulfing candle even more intriguing is the fact that today’s low was formed around 1.9555, which was a key resistance level in the past. With old resistance turning into support, price action is decidedly bullish. As the GBP/CAD is looking bullish and is inside a bullish channel, it remains on course to potentially reaching the upper resistance trend of this channel around the psychologically-important hurdle of 2.0000. Just below this level, at 1.9940, is the 127.2% Fibonacci extension of the last major downswing. The convergence of all these technical factors makes the area around the resistance trend very important. Thus we could see price retreat from there as the longs take profit – assuming we will get there in the first place.

We will remain bullish on the GBP/CAD for as long as it holds inside the bullish channel, though a break below the aforementioned support at 1.9555 could see price make a run for the support trend. A particularly bearish outcome would be if price broke out of the channel to the downside and the breakdown would then be confirmed once support at 1.9320 is also taken out.

15.07.06 gbpcad

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.