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February 21, 2022

Is GBP/CAD About To Surge Again?

Frank Cabibi

Since the beginning of this month, pound-loonie has climbed over 1.4% on growing bullish sentiment surrounding the British economy and monetary policy. Here are some reasons why GBP/CAD is about to surge again.

Some Diplomacy In The East

It appears that Putin is agreeing to talk things over with French president Macron in a potential summit that will be discussed this Friday. In the event of diplomacy, this may bring ease to the tensions and the rising oil prices which have been good for the Canadian economy. In order for this summit to take place, Russia cannot invade Ukraine. So, this should deescalate the conflict for a little while at least, and this could also cause oil prices/CAD to come down a bit.

Institutional Activity

COT data last Friday showed us that institutions were selling out of CAD and buying GBP futures contracts. The data included an increase in short positions as well as a decrease in long positions on the loone. At the same time, long contracts saw a considerable rise for GBP as the shorts decreased. If this behavior continues into the next week, we could likely see a more expensive pound overall.

Big Technical Break

GBP/CAD about to surge

The pair broke out of a tiple top on the 1D timeframe after cleanly bouncing off its 200 DMA several sessions ago. The next clear level of resistance is another 1.2% higher in the 1.75000s. Another big technical setup is the potential golden cross forming between the 50 and 200 day moving averages.

Overall, it would likely need an easing of conflict, continued support from big money, and a close above this key resistance level for the pair to break into another spike to the upside.

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