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– GBP / CAD in a bearish lateral movement.
– It is likely to break down as the long-term trend exerts.
– The fundamentals support the negative perspective.
The pound to Canadian dollar rate is biased to weaken from both a fundamental and a technical perspective, analysts say. Scotiabank, which say that the pound will soon slide below a minimum of five months in May.
The fundamental risks are predominantly political in nature, as the UK economy is showing resistance. PMI surveys have shown manufacturing and construction activity in contract territory, but a gain in the most important services industry in May.
The mixed results of the PMI meant that the composite PMI, an important important indicator for the economy, showed no change.
The biggest risk for Sterling and the United Kingdom is political and is due to the likelihood that the next leader of the conservative party and, therefore, of the country is a Eurosceptic, which increases the possibility of a Brexit "without agreement".
"The leadership campaign is likely to make the candidates express their harsh Brexit credentials to impress the wing of EU members who have the final say on who will lead the party," says Shaun Osborne, chief FX strategist at Scotiabank.
Another factor is that the clock does not stop and time is running out for the government to reach a withdrawal agreement with the EU. The pioneer in the leadership race is Boris Johnson, who recently said he would secure a Brexit at all costs on October 31, suggesting he could take the UK out of the EU without an agreed formal agreement.
"There is very little time left to reach an agreement and, regardless of the winner, concerns about Brexit without agreement can be strengthened," says Osborne.
Scotiabank analysts are not only pessimistic with the Poun, but they are also optimistic with the Canadian dollar, as they find the Loonie fundamentally undervalued. This means that it is currently cheap when economic factors are taken into account. The bottom line is that it will move toward "fair value" over time.
"The CAD remains fundamentally undervalued in relation to our estimated balance, however, the discount seems to moderate. Domestic risk is limited before Thursday's trade and Friday's job releases, "says Osborne.
Above: Pound to Canadian dollar rate. Technical analysis of the pound sterling live.
The fundamental analysis of the bearish and bullish Canadian dollar of Scotiabank suggests that the GBP / CAD is likely to decrease. This also happens with the technical analysis of the bank, which uses patterns of graphs and price action to forecast the future direction of the exchange rate.
"GBPCAD is firmer on the day so far, but the technical cues here stay tilted down," says Eric Theoret, a technical analyst and colleague at Osborne & # 39; s. "The action of the price this week has suggested a break to the downside of the consolidation (bear triangle) and a resumption of the movement to the downside (out of the lower range of Monday)"
The pair has been trading in a fairly narrow range, or lateral consolidation since the May decline found a floor at the low of 1.6906. However, it is likely that the exchange rate will break out of this range, which Scotiabank calls a "bear triangle", and continue its bearish trend.
The minimums of May 23 at 1.6906, are the "last tangible level" of support before a "total" fall in the 1.65 / 1.67 region that would see the long-term bearish trend further extended.
"We believe that the downward trend in long-term price action and bearish trend signals are more or less irresistible for the GBP We continue to see a limited margin for GBP gains beyond the 1.71" low area, says Theoret.
Scotiabank does not say when it expects the minimum 1.6906 to be reached or when the 1.65 / 67 targets will be met, but Pound sterling live The analysis suggests that the first could be hit in the next 1 to 5 days and the last in the next month. The live analysis of the pound sterling was set at a one-week advance published on Sunday.
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