GBP/CAD: Morgan Stanley sells, targets 1.95

Morgan Stanley advises its clients to sell the GBP/CAD this week.

"We like to sell the GBP/CAD as it's a tactic trade. We remain bearish on oil but don't ignore market positioning that could lead to a squeeze on oil. The direct effect of oil on trading is more pronounced for Canada and therefore the CAD rather than the GBP. The impact of oil prices on the GBP is indirect, coming from a decline in dividends in the oil sector and the decline in investments from oil-producing countries. Capital flows from such sovereign funds compared to the GDP is 5 times higher in the UK than in the USA. These reduced flows linked to oil prices are felt in the long term while the effect on trade in producing countries such as Canada is immediate. So the current rebound in the price of a barrel should bring more support to the CAD than the GBP.

Monetary and fiscal divergence also brings credibility to our bearish GBP/CAD scenario." says Morgan Stanley.

MS therefore sells the pair around 2.0230 with 1.95 as its target and a stop loss at 2.0520.