GBP/CAD analysis: bearish divergence forms ahead of BoC decision

By:
on Apr 11, 2023
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  • The GBP/CAD pair has moved sideways in the past few days.
  • The Bank of Canada will deliver its interest rate decision on Wednesday.
  • Analysts expect the bank to leave interest rates unchanged at 4.50.

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The GBP/CAD exchange rate was in a tight range on Tuesday as traders waited for the upcoming interest rate decision by the Bank of Canada (BoC). The pair was trading at 1.6750, where it has been in the past few days. This price is ~68 basis points below the highest point this week.

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Bank of Canada decision

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The biggest forex news of the week is the upcoming interest rate decision by the BoC that will come out on Wednesday. Economists expect that the bank will maintain its interest rate unchanged at 4.50%. If this happens, it will be the third straight month that the bank has left rates unchanged.

Recent data are supportive of a pause. Data published recently shows that the country’s inflation continued dropping in February. Annual inflation dropped to 5.2% during the month, the lowest level in eleven months. It was 5.9% a month earlier, making it the biggest decline in more than 3 years.

Further, core inflation, which excludes the volatile food and energy prices, also dropped to 4.8% from the previous 4.9%. Therefore, analysts believe that the BoC will not have an incentive to hike interest rates in the coming months.

The BoC decision comes a few days after Canada published strong jobs numbers. According to the statistics agency, the economy added over 34k jobs in March while the unemployment rate remained at 5%. This growth was mostly driven by the strong performance in the private sector. In a note, an analyst told Bloomberg:

“Bad news for the Bank of Canada was good news for Canadian workers in March. They’ll keep the door open to more hikes, but the recent banking sector turmoil raises the bar to unleash any more rate increases.”

GBP/CAD technical analysis

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GBP/CAD

GBP/CAD chart by TradingView

The 4H chart shows that the GBP to CAD pair has formed what looks like a double-top pattern that is shown in black. Its neckline sits at 1.6582, the lowest level on April 3. The price is slightly above the key support level at 1.6696, the highest point in January.

The pair’s Relative Strength Index (RSI) has formed a bearish divergence pattern. Therefore, there is a likelihood that the pair will have a bearish breakout as sellers target the next key support at 1.6582. A move above the resistance at 1.6840 will invalidate the bearish view.

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