Potential Bullish on GBP/CAD


Potential Bullish on GBP/CAD

Daily Outlook- 9 July 2024: Potential Bullish on GBP/CAD


A stable new UK government could support the pound, despite markets pricing in a potential rate cut in August. Any positive surprise in UK data could attract investors to long GBP-denominated assets. In contrast, markets are still pricing in further cuts by the BoC despite May inflation showing an upside surprise. As a result, if the BoE appears less dovish, the policy divergence between the BoE and BoC will remain significant.


Macro View:

GBP: While some positive expectations are already factored into the GBP ahead of the election, the Labour Party’s economic policies will take time to impact the Pound. However, a majority Labour government could bring political stability, boosting domestic investment. Combined with the Bank of England's expected easing cycle starting in August and continued growth in real incomes, this could help the UK economy recover in the second half of 2024. This scenario could support the GBP against the EUR, particularly if the BoE is less dovish than the ECB. Overall, with some positives already priced in, further economic data surprises would be needed to attract investors to GBP-denominated assets like UK stocks and support the currency.

CAD: The upside surprise in the latest Canadian CPI failed to give the CAD a long-lasting boost. The May increase in Canadian inflation to 2.9% year-over-year largely matched the BoC’s central scenario outlined in April. As a result, domestic money markets have reduced the chances of back-to-back rate cuts from 60% to 40%, without significantly altering the prospects of two cuts in the second half of 2024. Additionally, the latest Canada Job Report, released last Friday, revealed further weakness in employment conditions, with unemployment rising to 6.4% from 6.2% and employment change decreasing by approximately -1.4K from the previous 26.7K. This weaker-than-expected job gain and higher unemployment rate add complexity to Canada's economic outlook and suggests that the BoC may still consider further rate cuts to support the economy in the second half of 2024 despite a significant rose in May CPI.

FX View:

DXM: A Tool to Gauge Retail Sentiments

GBP/CAD Current Retail Long/Short Position

The DXM shows that 8% of traders are bullish, while the remaining 92% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

CAD Futures’ seasonality movement

The seasonal pattern for the CAD suggests bullish momentum in the near term but the latest economic development in Canada is not favor with this bullish seasonal pattern.

Sources: Prime Market Terminal


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