With much uncertainty plaguing both the British Pound and Canadian Dollar potentially supported by what is expected to be strong employment and trade data in the coming week, the pair is marginally exposed to downside risks even though the technical indications are still slightly bullish.

The charts show that GBP/CAD was looking quite constructive during the start of last week after consolidating in a sideways ‘flag-like’ pattern, however, weakness towards the end of the week started to distort the pattern which is now looking decidedly droopy and vulnerable to breakdown.

“Longer-term charts remain positive (on the basis of the weekly reversal which developed late last month) but short-term risks are tilted modestly lower from here,” said Scotiabank’s FX Strategist Shaun Osborne in a note seen by Pound Sterling Live.

Osborne also notes the bull flag.

“We spot support at 1.6245/0 intraday (base of the past two week’s consolidation); in theory, this could be the base of a bull flag (upside move resumes above 1.6540).”

But also the decline over the last few days:

“However, daily price signals have been quite negative, suggesting good selling interest on strength through early Feb and we rather think near-term trends are turning a little more negative, with the GBP easing under 1.6275/85 (Tuesday low, 38.2% retracement support of the late Jan rally). We look for the GBP to slip back to 1.61/1.62.”

We remain marginally bullish but only see an extension higher on a break above 1.6750 which is well above the bull-flag highs and the monthly pivot at 1.6680.

Such a move would foretell an extension to 1.7000 in all likelihood.

Canadian Data

The coming week sees the release of Canadian Employment Data for January, out at 13.30 GMT on Friday 10, with a -5.0k fall expected from a 53.7k rise in the previous month.

TD Securities think the result will be slightly higher than that at 10k, “due to strong hiring indicators,” and if much higher still may result in a bump for CAD.

“Canadian employment continues to draw market attention and the absence of a competing US payrolls report should allow for a clear reaction,” say TD Securities in a briefing to clients.

Other data includes the Trade Balance for December, with TD estimating they will show a widening of the trade surplus which may also be positive for CAD.

“Stronger exports of both energy and non-energy goods should lead to a widening of the trade surplus in Dec while modestly higher imports will provide a limited offset,” said TD Securities.

Pound Weakens Despite Upward Revisions to Growth

The Pound surprisingly weakened after the Bank of England’s (BOE) upwards revision to their growth forecasts last Thursday.

The fall in the Pound was due to a lack of real growth due to revisions being from excessively pessimistic forecasts made after the referendum, according to Intesa San Paolo’s chief economist Luca Mezzomo

Continuing upside risks to inflation due to currency weakness, as well as uncertainty over Brexit have kept - and are likely to keep the Pound subdued.

“We confirm our expectations for a possible – albeit modest – weakening of the pound in the near term, mostly due to the new phase of uncertainty that will begin once the Brexit process is officially triggered,” said Intesa’s Mezzomo, who expects GBP/USD to fall to 1.20 at the bottom of its range.

On a broader macro point, Société Générale’s Juckes notes headwinds to Sterling appreciation from the UK’s large current account deficit:

“Sterling is stuck in a range. It's very cheap on most measures, but then real yields are very low and the current account deficit is very big.”

Politics to Continue Driving Pound

The big event in the week ahead will be the debate in Parliament over the Brexit Bill and subsequent vote in the Commons on Wednesday, February 8.

Important amendments to the Bill will be discussed during these debates in relation to how ‘Hard’ or ‘Soft’ Brexit should be.

The proposed amendments include:

the request that before activating the withdrawal clause, Parliament may pre-emptively discuss whether or not the United Kingdom should exit the single market;the request that Parliament be regularly updated by the government on the advancement of the negotiations;the request that, once the final agreement has been reached on new relations with the EU, Parliament, that will have the power to vote to approve the agreement, may ask to extend negotiations in order to reach a better agreement;that the rights of EU citizens living in United Kingdom be guaranteed, or at least defined; that the government publish an assessment of the impact of Brexit on specific sectors, such as climate change, social inequality, and public financeOnce the vote in the Commons is passed the House of Lords will have their turn to debate and vote on the Bill on February 20.

It is then expected to be finally invoked on March 7.

From a data perspective, the big release will be Manufacturing and Industrial Production on Friday, February 10, at 9.30.

Analysts estimate a downtick to 0.4% from 1.3% previously for Manufacturing, and Industrial Production slowing to 0.2% from 2.1% in December.

The Trade Balance, also released on Friday is expected to show a narrowing of the Deficit to -11.4bn from 12.16bn in December.