GBPCAD Analysis (May, 2021) Bullish Q2?

The United Kingdom has had a massive economic expansion since opening doors and releasing itself from its near year long lockdown. Economic forecasts have changed nearly month to month as economists and analysts keep on increasing their forecasts.

Majority of the UK's hospitality and indoor commercial businesses are set to open tomorrow and with a surge in consumer spending inflation has been a key area of concern for the Bank of England.

Will we see the Bank of England and the UK Government implement deflationary conditions? Who knows.

Logikfx Fundamental Summary

Above is our fundamental summary technology page which covers our fundamentals in an easy to digest page ranging from domestic macro strength, the relative GDP growth/ interest rates and also comparing the hedge fund positions on the market.

What we can see overall is that a potential bullish move is brewing...but there are a couple contradicting factors such as the interest rate differentials and also the trade analysis which we'll come onto soon.

Currency Strength Meter

Our macro currency strength meter has maintained for two weeks a potentially bullish outlook on GBPCAD. The domestic economic data suggesting growth in the UK and weakness in Canada.

There's been clear weakness in the Canada from 24/04/2021 which is strange considering one of their major exports of WTI has been rising in price.

Nonetheless, the relative comparison suggests we should only be looking at a bullish move in GBPCAD which helps with our directional outlook.

GDP Growth Rates

The GDP Growth Rate Indicator shows relatively how well one country is performing against another. It's a lagging indicator but using the IMF forecasts we utilise the best analysts and economists forecasts in our decision making.

They're suggesting that the UK this year is set to grow more than the CAD by at least 0.1% but also from 2022 it's forecast to grow more which is a long term bullish sign.

This agrees with our currency strength meter which is a promising sign.

Trade Analysis (Imports/Exports)

WTI crude oil is a no brainer to analyse in this pair.

Canada is a major commodity currency meaning fluctuations in the price of it's main export crude oil affects its currency value.

What we've found is a -50% correlation between GBPCAD and WTI which is no surprise.

When the price of WTI goes up GBPCAD goes down and vice versa.

In this case we're actually seeing a bearish outlook from WTI as it soars in price since March with no signs of slowing down.

To be really confident in our bullish outlook on GBPCAD we'd expect WTI prices to his some resistance and fall, this could be one of our triggers with this move which acts as a catalyst for a GBPCAD uptrend.

Gold is another export/ import from both Canada and United Kingdom.

Again, we have a negative correlation shown between the two prices.

The diverging lines from 2013 and 2016 show the relationship in full force, a near mirror view of price.

Only until recently have prices of Gold continued to rise.

Therefore, similar to WTI we'd expect a fall in price in gold before being extra confident in a bullish move on GBPCAD.

Interest Rate Differentials

The interest rate differentials technology collects the latest interest rate decision data and compares it against two select countries.

In this case it's also looking bearish due to investors potentially wanting to hold more of their investments in the base currency CAD due to higher interest earnings.

Hedge Fund Positions - COT Report

Overall, as you can see the differentials in the net hedge fund open interest we're potentially seeing hedge funds buy more GBP than CAD.

This could be seen as bullish overall as the open interest is higher.

To be extra certain however we'd expect CAD open interest to be negative, so the dotted line (CAD) to be below zero and the solid line (GBP) to be above zero.

Price Behaviour

Over the past year or so GBPCAD has been largely congesting...

This price behaviour is quite dangerous as it means the exchange rate has been ranging and a long term trend doesn't generally occur.

However, looking into the past year we can see that GBPCAD has been maintaining higher highs and higher lows suggesting a potentially bullish sign and trend forming.

This is outlined in red above.

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