- The British pound has rallied ever so slightly during the trading session on Monday, as we continue to follow the 50-Day EMA against the Canadian dollar.
- The GBP/CAD market has been crawling slowly higher over the longer term, which does fit well with the overall trajectory of the British pound against most currencies.
- Further exacerbating the situation is the fact that the Bank of Canada may be done tightening monetary policy, which is exactly what they alluded to at the last meeting.
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Crude Oil Market Situation Is Crucial for the CAD
Another thing that comes into the picture is the idea that the crude oil markets will continue to struggle, and of course the Loonie is highly susceptible to pressure from the crude oil market itself as crude oil is one of Canada’s biggest exports. With all that being the case and the fact that the Bank of England has to fight inflation so aggressively, it does make sense that we go higher. In the short-term, I anticipate that the C$1.70 level is the first target, and then we could go looking toward the C$1.72 level after that.
Underneath, we have a nice uptrend line that continues to be of importance, but even if we were to break down below there, the C$1.65 level comes into the picture as a potential support level. Pay close attention to the crude oil market, because if it does suddenly turn around, that could put downward pressure on this market, but I believe at this point it would probably be somewhat mild due to the fact that the Bank of England is so aggressive. Having said that, if London suddenly changes its attitude and releases a little bit more of a dovish statement, it’s possible that we could see a complete turnaround. However, that does not look very likely in the short term, and therefore I look at each pullback as a potential buying opportunity.
While tomorrow is Independence Day in the United States, you should keep in mind that the liquidity in North America will be almost nonexistent. Sure, the Canadians will be on board but that is a very small fraction of the daily turnover in that part of the world, so don’t let the fact that the US dollar is not involved fool you, this is a market that will probably be somewhat quiet, but quite frankly I’m hoping that we get some type of significant pullback in an illiquid environment, offering value.
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