GBP/CAD Price Forecast For 2021: A Bounce Inside the Range Soon?
Last Update: June 5th, 2021
GBP/CAD – Forecast Summary
|GBP/CAD Forecast: 2022|
Price drivers: Coronavirus, Market sentiment, UK-Canada economy
|GBP/CAD Forecast: 1 Year|
Price drivers: Inflation, Bank of England, Bank of Canada, Coronavirus
|GBP/CAD Forecast: 3 Years|
Price drivers: Global Economy, Central banks, Global politics
GBP/CAD is a fairly volatile pair, with the daily range varying between 100 and 200 pips, although it used to be much more volatile in the previous decades until 2016. Since then, this pair has traded mostly sideways, which used to be 35 cents wide in the early year, but in the last few years it has narrowed to 10 cents, with the low being put in place by the 100 weekly SMA (green) at 1.68 and the top at around 1.78. Although, the ranges could be very profitable as well when trading and right now it seems like this pair is presenting a nice buying opportunity, after the retreat down at the bottom of the range during H1 of 2021 and now it seems like the price is reversing higher, targeting the top of the range.
Fundamentals are improving considerably for both currencies, as the countries are starting to get out of the dark winter restrictions, which sent the UK and Canadian economy into another contraction in Q1 of this year after the recession last year. Despite both economies being the weakest among the major ones, the GBP and the CAD have been among the strongest so far this year, with other fundamentals helping them right now. Although the CAD has a problem with renewable energy in the long term, driving out Oil products, let’s see how fast politics will move on that.
Recent Changes in the GBP/CAD Price
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Factors Affecting GBP/CAD
The coronavirus situation has affected all economies and their currencies, although the second round of the virus has been positive for the GBP and the CAD, despite both countries having some of the toughest restrictions worldwide since winter last year. The Brexit deal between the EU and the UK has helped improve the sentiment for the GBP immensely while now the economy is also improving, which will help matters further for this currency. The CAD, on the other hand, has been benefiting from the increasing Oil prices. The Canadian economy is also improving and will get some further help from the US economy, which has been booming for some time, so both currencies have a bullish bias ahead, which leaves the prediction for GBP/CAD range bound.
GBP/CAD Price Prediction for the Next 5 Years
GBP/CAD has been fairly calm in the last 5 years, trading in a range as it keeps bouncing up and down between the support and resistance levels. This sort of price action is expected for the mid-term future, with fundamentals being similar for both currencies. During the Q1 of this year, sellers were in charge inside of this range, while now we are seeing a reversal higher, which looks like a good chance to go long on this pair. In this article, we will have a look at the fundamental factors, besides the technical picture which is pretty clear.
UK And Canada Coming Out of A Long Coronavirus Winter
The coronavirus was not so sudden when it finally arrived in the West, after being in China for a few months, but the governments and central banks were all unprepared for the catastrophe, both logistically/medically and economically. They took some really rushed decisions while in panic last year, which didn’t help much, since the global economy fell in a deep recession in Q1 and Q2. In Q3 we saw a strong bounce, but the restrictions returned again, particularly in Britain and Canada, which went into long lockdowns again during the last winter.
The UK economy fell in another contraction, after the recession in 2020, while inflation cooled off in both countries, even though crude Oil prices were increasing. The Canadian economy held well in the last two quarters, despite the restrictions. Now they are both coming out of the long winter restrictions and are opening up their economies, although not in full. This is already helping the economies. as we will explain further in the fundamental section below, and the future looks bright, at least for the summer and early spring, before the restrictions come back again next winter, because this is forming a pattern now.
UK and Canadian Economies Picking Up Pace
The global economy went into meltdown in Q1 and Q2 of 2021, as the coronavirus spread all over the world, although the country where the virus first appeared recovered pretty fast. China only went through a minor crash, while the western world suffered considerable damages. The UK economy was one of the most damaged from this, falling into recession in Q1 and Q2 of last year, with the GDP coming at -2.0% and -20.4% respectively, while falling into another contraction in Q1 of 2021, with the GDP coming at -1.5%. In Canada the economy went into a massive dive as well last year, although it held above water this winter, despite the lockdowns and other harsh restrictions during winter and spring this year.
Inflation also cooled off until Q1 of this year in both countries, following the trend of Q4, despite the increasing crude Oil prices, which showed that these two economies were suffering again from the coronavirus restrictions. But, in March and April we saw a jump in inflation and now the CPI (Consumer Price Index) inflation stands at 1.5% in the UK. It’s still quite below the Bank of England target at 2%, but it’s increasing fast and, judging by the trend in other countries, inflation will also increase above 2% soon according to the BOE governor Andrew Bailey, as earnings keep surging at a pace of more than 4%. In Canada the Median CPI inflation stands at 2.3% after having increased in recent months. Unemployment still remains high in Canada after the jump following the latest restrictions during March-April this year, but it’s not threatening, while in the UK it has fallen below 5%. Central banks have tried to play down the heating up of the economies, but their rhetoric is more of a sign that they will start to think seriously about tapering the massive coronavirus stimulus programmes, if the global economy keeps improving. So, both economies are at the same point in this recovery process.
Will the Transition from Oil to Fossil Fuel Hurt the CAD?
While the British Pound had an additional reason to rally this year, which is the Brexit deal between the UK and the EU, the Canadian Dollar also had crude Oil covering its back. We have seen some decent attempts from USD buyers to reverse the declining trend, USD/CAD has kept declining, showing immense strength in the CAD, just like GBP/USD which pushed above 1.40m after falling to 1.14 during the coronavirus outbreak last year. One of the reasons for the CAD to rally was the bullish trend in crude Oil prices. US WTI Oil and UK Brent crude Oil trade above $60 with a bias to the upside as of May 2021, since the improving global economy keeps increasing the demand for energy. So, Oil has been a helping hand for the CAD, but with the recent political developments the world is shifting towards renewable energy. Crude Oil is falling out of consideration from the global political powers and the political games with the US pipeline “cyber-attacks” shows the trend to where we are heading. This will likely have a negative effect for the Canadian Dollar, since Canada is a major exporter of Oil. But, that might take a year or two, so for the time being the situation seems positive for the CAD.
More forecasts you should read
GBP/CAD Technical Analysis – Will We See A Bounce Off the 100 SMA?
A bounce is expected off the 100 SMA
GBP/CAD used to trade on a bearish trend during the 2000s, declining from around $2.68 to around $1.48, with the 20 SMA (gray) providing resistance during the decline. The price consolidated in a 10 cent range for several years, then it made a bullish move above the $2 and above the 200 SMA (purple). But the 200 SMA wasn’t broken despite being pierced, since all the candlesticks closed below that moving average. Eventually the price reversed down from 2015 until 2016 and since then this air has been trading in a range, as we mentioned in the beginning. The top of the range is defined roughly by the $1.78 level while the bottom is defined by the 100 SMA (green). We find this pair at the bottom of the range, with the 100 SMA providing support again, which is a sign that a bounce to the top of the range should follow soon.
The 100 SMA is also acting as support on the weekly chart
On the weekly chart the picture is similar, with GBP/CAD falling down from 2015 until 2016, while the 20 SMA (gray) was acting as resistance, pushing the price down. Since then the price has been bouncing up and down, with the range narrowing up in recent years. The 200 SMA (purple) acted as resistance in 2018, while the 100 SMA is acting as support here as well. At the moment we find the price just above the 100 SMA, similar to the monthly chart and a bullish reversing pattern is forming in this time-frame chart. The stochastic indicator is oversold, while the previous candlesticks closed as dojis which also point to a bullish reversal after the decline in Q1 and Q2 of this year.