GBP/CAD traded higher during the European morning Tuesday

GBP/CAD

• The dollar traded higher or unchanged against all but one of its major peers during the European morning Tuesday. It was lower only against JPY. The greenback outperformed AUD, NZD, NOK, CAD and GBP, in that order, while it traded virtually unchanged versus EUR and SEK.

• The pound suffered today after the UK manufacturing PMI for August unexpectedly declined to 51.5 from 51.9 in July, missing estimates of a modest rise to 52.0. This could increase speculation that tomorrow’s construction PMI is going to miss estimates as well and weigh on expectations of solid growth in Q3. GBP/USD was declining ahead of the release and at the event, it accelerated lower to trade temporarily below the support zone of 1.5330, marked by the low of the 8th of July. A disappointing construction PMI tomorrow could pull the trigger for another attempt below that support zone, something that could pave the way for the 1.5250 area defined by the low of the 9th of June.

• Later in the day, the focus will be on Canada’s GDP data. The loonie was the main winner yesterday among the G10s following the surge in oil prices, but today it surrendered to its stronger US counterpart. The market expects the monthly GDP for June to have improved, but the Q2 GDP as a whole is forecast to have fallen further. This could put further pressure on the BoC to act soon and could push CAD even lower. USD/CAD rebounded from 1.3120 today, and a disappointment in Canada’s GDP data could push it higher, for another test at 1.3325, yesterday’s high.

• GBP/CAD traded higher during the European morning Tuesday, after it hit the key support zone of 2.0120 (S1). Although Canada’s GDP data could push the pair a bit higher, the short-term trend on the 4-hour chart still looks negative. However, given that there is positive divergence between our short-term oscillators and the price action, I prefer to wait for a break below 2.0120 (S1) before getting more confident on the downside. Such a break is likely to open the way for the psychological zone of 2.0000 (S2). As for the broader trend, on the 27th of August, GBP/CAD fell below a medium uptrend line taken from the low of the 5th of May. What is more, there is negative divergence between both our daily oscillators and the price action. The technical signs derived from the daily chart amplify the case that any near-term bounces are likely to remain limited and that the aforementioned short-term downtrend is likely to continue for a while.

• Support: 2.0120 (S1), 2.0000 (S2), 1.9865 (S3)

• Resistance: 2.0300 (R1), 2.0520 (R2), 2.0600 (R3)