"Look for the pound to trade better bid above 1.6350 but remain generally better offered if gains stall around the 1.63 zone in the next day or so" - Scotiabank.

Image © Adobe Stock

The Pound to Canadian Dollar exchange rate has painted a picture of mixed signals onto the charts in recent weeks, according to technical analysis from Scotiabank, and economic data due out on Thursday and Friday could help to either make or break the overall trend for Sterling.

Sterling was already carrying a hat-trick of gains when climbing further against the Loonie on Wednesday and in midweek price action that potentially marks a resumption of the recovery that lifted GBP/CAD from around 1.41 in late September to a peak above 1.68 by the middle of December.

The month of losses since then left Sterling appearing to be at a set of crossroads on the charts but this week's gains have made a rebound above 1.6350 a credible prospect for the days ahead and that would potentially invite a "better bid" from the market in the days and weeks ahead.

"The pound has found support against the initial (23.6%) retracement support of the 1.41/1.68 rally at 1.6195. Price action late last week formed a bullish outside range against the Fibonacci point and additional gains today help “confirm” the rebound (assuming a net positive GBP performance on the day)," says Shaun Osborne, chief FX strategist at Scotiabank.

"We note, however, that intraday, daily and weekly trend oscillators are tracking flat to GBP-bearish courses right now, which rather suggests scope for GBP gains may be limited to the low/mid 1.63s. Look for the pound to trade better bid above 1.6350 but remain generally better offered if gains stall around the 1.63 zone in the next day or so," he adds in Monday commentary.

Above: Pound to Canadian Dollar rate at daily intervals with selected moving averages and Fibonacci retracements of September recovery indicating possible areas of technical support for Sterling. Click image for closer inspection.

The Pound had benefited before December from a sharp sell-off in Canadian Dollar exchange rates that has since been partially reversed against a number of other currencies and which might now mean more heavy lifting in GBP/CAD for Sterling and the UK economy.

To the extent that it does the prospect of the Pound's earlier recovery resuming in sustained way would be limited at best in the absence of a positive surprise from this Friday's release of GDP data for November, and even more so if U.S. inflation figures wrongfoot the economist consensus on Thursday.

Many economists expect that Friday's GDP data will all but confirm that the UK slipped into a recession during the final quarter while the Canadian Dollar has consistently had a stronger correlation with the U.S. Dollar than Sterling throughout the last year.

The latter is why GBP/CAD could be expected to struggle for traction from Thursday onward if it transpires that economists are wrong to anticipate a third successive decline in U.S. inflation for December as that would be an upside risk for the U.S. Dollar.

"We think there is a risk that inflation falls quite quickly in the next few months, given the significant base effect that will come into play as last year’s rapid H1 price gains drop out of the y/y calculation. This implies longer run pressure on the USD and may mean the window we thought was opening for some moderate USD strength in the short run remains limited," Osborne says.

Above: Pound to Canadian Dollar rate shown at weekly intervals with selected moving averages and Fibonacci retracements of September to December recovery indicating possible areas of technical support for Sterling. Click image for closer inspection. If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.