The UK did not raise rates in May and Carney set a dovish hold for the Bank of England. The next mainstream expectation is pricing in a rate rise for August , but that will depend on the data. At the moment the expectations for the CPI out on 23rd of May is a revision downwards. The same too for retail sales on the 24th of May as Justin recently pointed out (see must read section). Today Mark Carney will be speaking to Treasury Committee about the inflation report. Now, what I am anticipating is more bearish language from Carney. I can't see him being bullish with the data we have had recently. Brexit woes are forever in the background as well creating political uncertainty with domestic politics too.
For CAD, as a commodity currency, the recent risk on tone and the rise in oil is set to keep it bid. Supply disruptions to oil remain elevated whether it is from Iran, Venezuela, or Saudi Arabia. US Shale drillers are being thrifty rather than ramping up production. Oil is currently at 72.51 and showing no-sign of abating with plenty of geo-political tensions to help keep it bid.
So, we have our pair, GBP/CAD short. How to enter? Good question. In a strong market like this I will use a hidden bullish divergence on the stochastics to enter a short. An explanation can be found here if you are unfamiliar with this technical set up. I will wait to see what Carney and Co say and then consider entering a short. For the brave, you could enter at market now. The bottom daily chart shows how much downside potential this chart has for the day. It is an intraday set-up, but it could run for a few days depending on how the data comes out for the GBP for the rest of the week.
Risk to the trade are a more hawkish Carney and reversal in Oil prices. Once the BOE speakers are done, the main risk for the day is over for this trade. As always, keep an eye on sentiment , as the market is a fickle beast.
Plenty of room to fall on the daily chart.