Market Update – GBP CAD
We’ve had a very mixed bag of data for the pound over the last week. Public sector borrowing was far higher than expected for October (£11bn versus £7bn expected) and traders are still concerned that further quantitative easing may lie ahead after last week’s Bank of England minutes revealed that one MPC member voted for a £40bn increase. On the plus side, inflation for October was a healthy 1.5%, and we are expecting a slight upward revision to the preliminary estimate of third quarter GDP tomorrow. In Canada things were quieter, with annualised October inflation ticking into positive territory at 0.1%. Finance minister Jim Flaherty reiterated his intention to continue the stimulus spending package into 2010, but said there would be no new large spending items in the budget. Canada slumped into a budget deficit for 2008-09, but is unique among the G7 in being the only country to have maintained a budget surplus for the ten preceding years.
The short squeeze that helped sterling surge in October has failed to follow through into November. The pound has still managed to defend our key near term support at 1.7110, and while it continues to do so we are giving it the benefit of the doubt. It would take a fresh break above 1.7940 to signal a new up leg, and a further rally up through 1.8300 would ask serious questions of the longer term down trend. Let’s not get ahead of ourselves ! For now we recommend that clients with near term CAD requirements cover half now and take a “wait and see” approach on the balance. Keep in mind that a break below 1.7110 would in our view signal a likely deterioration back towards the October lows around 1.6250.
Any opinions expressed in this document are those of TorFX
analysts. Any analysis and/or forecasts provided are aimed at
helping clients understand market conditions and developing trends.
Clients are wholly responsible for their own trading
decisions.
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