Widened Trade Deficit Weakens Loonie Against the Pound

Canadian DollarIt was due to the Brexit issue that the Pound weakened against some of the major currencies of the world, including the Canadian dollar in the last three months. Moreover, the recovery in the crude oil price and a range of positive economic data helped the Canadian dollar outweigh the Pound. However, a change was seen in the last two weeks in the mentality of the analysts and traders.

The GBPCAD currency pair was at a low of 1.8114 and increased to 1.8666 on Wednesday. Following are a few reasons why we believe the trend may continue until the next month.

As the Brexit issue continued to dominate, the IMF (International Monetary Fund) chief Lagarde gave out a warning that it can wipe out 20% of the Pound even though the forex market may remain volatile. The Pound already got outweighed by some of the world’s major currencies as well as the Euro. It may not be sensible to go short at such a point in time when the market seems to come to terms with the referendum. The pound may fall only if the referendum or plebiscite results in Britain’s exclusion from the EU. However, before a conclusion is reached, the positive and negative sides of Britain’s exit from the EU should be studied thoroughly.

AFP News Agency

The construction sector of UK experienced its lowest growth since 2013 in April. Manufacturing sector faced a similar fate, with the lowest growth noticed in April since 2013. Despite the falling due to weak economic data, new lows were not recorded by the Pound against the Canadian dollar as has been factored by the market in a majority of the bad news.

It is true that the Canadian economy, which embarked on success and was full of surprises in February is now facing a hard due because of the strengthening of the Canadian dollar. Exports declined for the second successive month (March). The trade deficit continued to get stronger, reaching from C$2.5 billion to C$3.4 billion in February. Analysts had only predicted a deficit of C$1.2 billion. Moreover, the downfall may have more in store as it now poses a threat to the oil production. For now, just to be safe, three companies have already stopped producing. Hence, you can expect GBPCAD currency pair to rise in the coming weeks.

The GBPCAD currency pair increased from significant support at 1.8250. Besides, a bullish total harmonic pattern was also seen due to the price action. Hence, we are assuming that the currency pair may hit its next resistance at 1.9150.


GBP/CAD Pair: May 6th, 2016

Hence, it would be sensible for a forex trader to buy the Pound in exchange for the Loonie, as the current level of 1.8600 seems perfect. To avoid risks of heavy losses, place a STOP LOSS ORDER below 1.8450 and book the profit at 1.9100 levels.

Similarly, to make the best out of a possible rise, binary options traders should go for the “One-Touch” CALL Option contract. An ideal price seems to be 1.8800. Choose the second week of June for the expiry period to increase chances of success.

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