Nick Nasad
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GBP/CAD: Key Test at 1.8070 Pivot, Will Profit Taking Turn into Further Slide?

The GBP/CAD slid through a short-term level of support at 1.8255 to start the week and ran smack into another key pivot at 1.8040.

  • The GBP was slammed by a flight out of the GBP/USD and GBP/JPY, which reverberated into the GBP/commodity crosses.
  • While manufacturing data was softer than expected and was likely a factor for a soft GBP, I think this recent move seems a bit overdone.
  •  Why should the CAD, which has a weakening bias from its central bank do better than the GBP, where the economic data has been generally supportive of a more hawkish central bank.
  • The obvious answer is that there is some shifting of positions and portfolios at the moment, and what was a profitable trade in late 2013, buying the GBP at the expense of the CAD, is now seeing some profit taking.
  • Therefore, this downmove could extend, and a push through support at 1.8040 likely opens up the lows from early January near 1.7780.
  • However, its also possible that the pair finds some support at these levels, and if the GBP firms up across the board, this should be a currency pair that rallies.