Overview
The article discusses the current state of the foreign exchange market, particularly focusing on the USD/CAD and GBP/CAD currency pairs, and their implications for a potential rebound in GBP/USD. With the US inflation figures set to be released, the market is anticipating a rise in inflation due to increasing crude oil prices amidst geopolitical tensions.
Market Context
The US dollar has recently rallied to cycle highs, driven by hawkish expectations from the Federal Reserve. However, for the dollar to maintain its strength, the upcoming Consumer Price Index (CPI) report must exceed current elevated expectations. This creates a scenario where the performance of major currencies is increasingly correlated with the US dollar's movements.
Technical Analysis
USD/CAD
The USD/CAD pair has shown signs of exhaustion after a strong rally from September lows. The daily chart indicates a sideways range of about 100 pips, with bearish divergences on the RSI suggesting a potential retracement. Key support levels are identified around the 1.4500 mark, which could be a target for bears if the CPI report disappoints.
GBP/CAD
In contrast, GBP/CAD maintains a bullish structure despite some messy price action. The weekly chart indicates that the pair found support around the 50-week EMA, and recent momentum has broken out of a bearish corrective channel. The article suggests waiting for signs of a swing low to confirm bullish momentum, with potential targets at 1.8966 and 1.9000.
GBP/USD
The analysis of GBP/USD indicates that if the anticipated pullback in USD/CAD and rebound in GBP/CAD occurs, it could lead to a bounce in GBP/USD. The pair has formed two rickshaw dojis on the weekly chart near the 1.3200 support level, suggesting a potential bullish reversal. A bullish engulfing candle on the daily chart could serve as a trigger for this rebound, especially if the dollar weakens following the CPI report.
Conclusion
The article emphasizes the interconnectedness of the USD/CAD and GBP/CAD pairs with GBP/USD, suggesting that traders should closely monitor these relationships as they prepare for the upcoming US inflation data. The technical indicators point towards a potential bounce in GBP/USD, contingent on the market's reaction to the CPI report.