The UK economy is all set for Wednesdays Article 50 announcement that Teresa May has triggered the vote, and it will certainly lead to a lot of worry and tension in the UK economy, but most importantly volatility in the markets. There is the negotiations with the EU and of course the troubles brewing in Scotland which could set in motion even further problems if they keep putting pressure on Westminster during this critical time. So far the government has said NO to Scotland to have a referendum but one can be sure that Sturgeon will try and cause as much of a head as possible in order to try and force the subject, and the war of words could quickly flow on to the markets. Around the same time the Bank of England is also likely to hold rates until it knows what position it’s going to be in, despite the recent strong inflation figures. It would take sustained inflation above 2.5% in order to see a change of heart and then again the BoE would still likely be dovish with the impending troubles ahead.
For the GBPUSD it’s been somewhat slow going on the charts as it has been ranging for some time with strong resistance and strong support appearing, but more important a consolidating flag pattern has formed on the D1 chart. The recent drop is no surprise and I would expect after the touch that the bears might look to take control and drive lower on the back of all the noise being generated from Scotland and Article 50. Further movements lower are likely to push down to the bullish trend line in the pattern and this would act as dynamic support. Pushing below this would find further support at 1.2123. Any movements higher would obviously find resistance at the trend line and would also find resistance at 1.2738.
The Canadian economy is also one of the interesting ones to watch with its strong correlation to the Oil markets, and as of late it has been struggling even with some government stimulus. The head of the Bank of Canada speaking today said that there was still potential for a further rate cut in the short term if the economy did not pick up. However remained upbeat on the energy sector and the fact that the government stimulus will flow through to the economy eventually.
Regardless of all this the USDCAD has been an interesting trade as of late and despite all the selling of the USD it continues to be strong against the CAD. So far the market is playing of oil moves, but at the same time the USDCAD is making further ground and many are looking to see if has another bullish move in it, and if it could potentially rise up to 1.3479 in the short term. There is a chance we could see another strong sell off and this would like to test the key level of support at 1.3262 which has previously held out.