By IFCMarkets

Another round of Brexit talks is expected this week

In this review, we suggest considering the British pound against the Canadian dollar currency pair. Is there a possibility for the GBPCAD prices to rise? Such dynamics are observed in case of the weakening of the Canadian dollar and strengthening of the British pound.

The British pound has been falling for 6 weeks in a row. Since the beginning of April of the current year, its exchange rate against the US dollar has fallen by 12% to the 14-month low. The main reasons for this were the problems in negotiations on the terms of the UK’s withdrawal from the European Union. Investors fear that before Brexit (on March 29, 2019), the contract will not be signed. The next negotiations between the UK and the European Union on Brexit will be held on August 21-22, 2018. If there is any progress, then this can contribute to the strengthening of the pound. European Commissioner for Economics and Financial Affairs of the EU countries Pierre Moscovici said that Brexit could be suspended if such a decision was made by the people of Great Britain. Positive data on retail sales for June can also support the pound. Earlier, the Canadian dollar showed a tendency to decline amid cheap oil prices. Fuel and energy products account for about a quarter of Canadian exports. Inflation in Canada in July jumped to the 7-year high and amounted to 3% year over year. This increases the chances of a rate hike by the Bank of Canada at its next meeting on September 5, 2018. Now the probability of this event is estimated at 59%. The rate hike can strengthen the Canadian dollar and reduce the chances of the GBPCAD growth.

On the daily timeframe, GBPCAD: D1 is in a downtrend. However, its decline has slowed down and some indicators of technical analysis have formed buy signals. An upward correction is possible in case of successful negotiations on Brexit, and in case the Bank of Canada does not raise the rate.

• The Parabolic indicator gives a bullish signal.
• The Bollinger bands have widened a lot, which indicates high volatility.
• The RSI indicator is below 50. It has formed a positive divergence.
• The MACD indicator gives a bullish signal.

The bullish momentum may develop in case GBPCAD exceeds the resistance line of the downtrend at 1.68. This level may serve as an entry point. The initial stop loss may be placed below the last fractal low and the Parabolic signal at 1.657. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level (1.657) without reaching the order (1.68), we recommend to close the position: the market sustains internal changes that were not taken into account.

Summary of technical analysis

Market Analysis provided by IFCMarkets