GBP/CAD Clings To Upbeat UK Retail Sales Monitor Data, Holds Steady Above Mid-1.63000s

• GBP/CAD cross attracts fresh buying on Tuesday to extend a modest rebound from the monthly low
• A stronger-than-expected UK Retail sales monitor data underpins the Cable and caps the major against any further downtick
• Rebounding Crude Oil Prices undermine the Loonie
• Investors now look forward to a slew of second-tier macroeconomic data for fresh directional impetus

GBP/CAD pair attracted some dip-buying in the vicinity of 1.63625 levels during the early-Asian session. The cross so far has managed to extend the modest rebound from the monthly low last touched last week on Friday and staged an intraday recovery despite a series of minor corrections. As per press time, the shared currency is up over 15 pips for the day and looks set to maintain the offered tone heading into the European session.

The shared currency's latest performance could be attributed to stronger-than-expected UK Retail sales monitor data, which exceeded expectations in February. Retail sales in the United Kingdom jumped 4.9% on a like-for-like basis in February 2023 from a year ago, accelerating from a 3.9% rise in January and exceeding market expectations for a 4.8% gain as consumers continued to celebrate special occasions despite the cost-of-living crisis. 

Helen Dickinson, chief executive at the British Retail Consortium (BRC), said: "While the cost-of-living crisis has made customers increasingly price-sensitive, they are still ready to celebrate special occasions." Paul Martin, UK head of Retail at KPMG, added: "With overall inflation running at around 10%, and food inflation sitting nearer 20%, total sales growth for February of just 5% will be eating hard into retail margins and masking the true state of the sector's health.

It is worth noting that, despite the increase in consumer spending at the retail level noted by the BRC report in February, the BoE raised interest rates to 4% in February and hinted that it was close to ending its run of rate hikes but said there were concerns about inflationary pressure in the labor market. Softer-than-expected UK Inflation figures released in late February supported bets on further policy easing and, in some way, could ease off the pressure on the UK Central Bank to deliver aggressive rate hikes going forward. That said, financial markets expect interest rates, now the highest since 2008, to rise to 4.75% later this year.

Further lifting the Cable was the firm UK Construction PMI prints, which showed UK construction activity grew the most in nine months. The S&P Global/CIPS UK Construction PMI rose to 54.6 in February 2023 from 48.4 in January and easily beat market expectations of 49.1, according to a report released by Markit on Monday. The latest reading pointed to the fastest pace of expansion in the construction sector since last May, as commercial construction increased the most in nine months and civil engineering works returned to growth.

Additionally, rebounding crude oil prices as markets awaited Chinese trade data to gauge the strength of crude demand in the country was seen as a factor that undermined the Loonie. Additionally, the anticipation of testimony by Federal Reserve Chair Jerome Powell kept broader sentiment muted. It is worth noting Fed Chair Jerome Powell is set to testify on the economic outlook and recent monetary policy actions before the Joint Economic Committee in Washington DC later today. The testimony is in two parts; the first is a prepared statement, then the committee conducts a question and answer session. The Q&A portion of the testimony could see heavy market volatility for the duration and if the Fed Chairman comes out more hawkish than expected, we could see crude oil prices slumping and in turn, the GBP/CAD pair could rise higher.

Further limiting the Loonie was the downbeat Canada Ivey Purchasing Managers Index (PMI) data, which showed activity expanded slower in February. The Ivey Purchasing Managers Index in Canada fell to 51.6 in February of 2023 from an eight-month high of 60.1 in the prior month, missing analysts' expectations of 55.9. The latest reading indicated that Canadian economic activity expanded much slower during February, as job creation eased (59.4 vs 60.5 in January) and inventories increased (53.7 vs 52.7).

As we advance, investors look forward to the UK docket featuring the release of the Halifax House Price Index YOY and MOM for February, seen both lower at -0.3%. Traders will further look for cues from the speech of Bank of England (BOE) Deputy Governor Sam Woods on future monetary policies. His comments would determine the short-term positive or negative trend around the British pound.

Technical Outlook: GBP/CAD Four-Hours Price Chart

From a technical standstill, using a four-hour price chart, the price extended the modest rebound from the monthly low/ 1.62193 level after a firm rejection from the key support level plotted by an ascending trendline extending from the mid-February 2023 swing low. Some follow-through buying would face stiff resistance at the 61.8% Fibonacci Retracement level at 1.63729. If the price pierces this barrier, it will pave the way for aggressive technical buying around the GBP/CAD pair. The Bullish trajectory could then accelerate toward making a third retest on the key resistance level. A convincing break above this level (bullish price breakout) would pave the way for additional gains around the GBP/CAD pair.

All the technical oscillators hold positive territory, with the RSI (14) at 51.23 and the Moving Average Convergence Divergence (MACD) Crossover all above the signal line, thus pointing to a bullish sign for price action this week. Acceptance of price above the 200 Exponential Moving Average (EMA) at the 1.63076 level adds credence to the bearish bias. Additionally, the 20 and 50 Exponential Moving Average (EMA) crossover (Golden Cross) at the 1.62992 level validates the bullish bias. 

On the flip side, if dip-sellers and technical traders jump in and trigger a bearish turnaround, the price will first find support at the 1.63076 support level (200EMA level). If sellers manage to breach this floor, it will pave the way for a drop toward the 1.62361 support level en route to the key support level plotted by an ascending trendline extending from the mid-February 2023 swing low. Sustained weakness below these barriers would pave the way for aggressive technical selling around the GBP/CAD pair.