GBP/CAD gets overbought as BoC and BoE divergence widens

The GBP/CAD price continued its remarkable comeback as a divergence between the Bank of Canada and England emerged. It jumped to a high of 1.6512, the highest level since February 28. It has jumped by more than 2.62% from the lowest level this year.

BoE and BoC divergence

The Bank of Canada concluded its meeting this Wednesday and decided to leave its interest rate unchanged. By doing that, it became the first major central bank to stop implementing interest rate hikes. In its statement, the BoC said that the pause was necessary to avoid over-tightening, which will have an impact on the economy.

The BoE, on the other hand, is expected to continue hiking interest rates in the coming meeting. While the bank has also turned dovish, there are signs that it has at least two more increases to go. Analysts believe that it will either hike rates by either 0.25% or 0.50%. If it hikes by 0.50%, UK’s interest rates will match that of Canada, which stands at 4.50%.

There will be several catalysts for the GBP/CAD price. On Friday, the UK will publish the final estimate of Q4 GDP numbers. Economists believe that the UK economy grew by just 0.1% in January of this year. Manufacturing and industrial production are expected to have dropped slightly during the month.

These numbers will come ahead of a busy week that will see the UK publish the important jobs, inflation, and retail sales numbers.

The GBP to CAD price will also react to the upcoming Canada jobs numbers scheduled for Friday. Expectations are that the unemployment rate remained unchanged at 5.1% as the economy added just 10k people.

GBP/CAD forecast

GBP/CAD chart by TradingView

The 4H chart shows that the GBPCAD price has been in a remarkable comeback. Precisely, it has risen in the past eleven straight four-hour periods. As it rose, the pair managed to move above the key resistance level at 1.6420, the highest level on March 7. It has jumped above all moving averages and the ascending trendline shown in green. 

The Relative Strength Index (RSI), MACD, and the Stochastic Oscillators are getting a bit overbought. Therefore, we can’t rule out a situation where there is a pullback as sellers target the key resistance point at 1.6420. This pullback will happen after the key UK GDP and Canada jobs data.