- GBP/CAD bears hungry for a downside extension from key 50% mean reversion area.
- All eyes on BoE and the Scottish wildcard while, elsewhere, BoC plays its role in bullish CAD.
GBP/CAD is trading at 1.7063 at the time of writing between a low of 1.7042 and a high of 1.7068 following a series of down days in the month of April which has been corrected to a 50% mean reversion level.
Looking to the net GBP position, it has moved deeper into long territory on a busy week for the pound.
The eyes are on the Bank of England will meet and it needs to decide the next steps for its QE programme in May or June.
Some market participants are questioning whether tapering could be imminent.
The wild card is the Scottish elections that are scheduled to be held on May 6th.
''We look for an expansion rather than a taper, at the June meeting. That would leave the focus on the Consumer Price Index forecasts this week with no decision yet on QE,'' analysts at TD Securities said.
''The G10FX beta to central banks seems fairly low now, suggesting a muted reaction to our base case as investors roll expectations forward to June. Otherwise, we see a greater sensitivity on the dovish side as some participants already anticipate a taper this month.''
Meanwhile, net speculators’ positioning in the CAD rose again.
The Bank of Canada tapering has been a positive for the current as commodity prices rise and the greenback takes battering.
Overall, the leveraged accounts shorted the CAD although this was more than offset by asset managers reducing their shorts, and increased longs across both groups.
Technical analysis
Meanwhile, there is a prospect of a downside continuation as follows:
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The 50% mean reversion has been hit, but there are prospects of a deeper correction to test the 61.8% Fibo.
If that were to occur, the current resistance structure would turn to support and invalidate the immediate downside bias until new bearish structure is formed.
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