The euro currency finally balances against the Canadian dollar going into today’s key interest rate decision from the Bank of Canada. The EURCAD pair has been trapped in a protracted downtrend for most of 2021 and is threatening to spill even lower if the central bank remains hawkish today.
Most economists are anticipating that the Bank of Canada will hold interest and monetary policy steady this month after the central bank became the first central bank to taper QE bond purchases in their May policy meeting.
While the outlook remains positive for the Canadian economy, recent events are likely to keep Bank of Canada policy makers cautious. Ongoing strength in the Canadian dollar and weaker-than-expected jobs are some of the key reasons why the policy is likely to remain unchanged.
Furthermore, softer-than-expected GDP growth during the first fiscal quarter and possibly the second quarter may cause the central bank to tone down its hawkish rhetoric.
If we consider that the Bank of Canada is already tapering its QE purchases it is likely that a ramp-up in inflation in Canada and significant economic growth is needed to prompt a rate hike.
The EURCAD pair is particularly interesting because both the Bank of Canada and the European Central Bank meet this week. The EURCAD pair could see significant market volatility over the coming twenty-four hours.
Something we are seeing now is high levels of positive sentiment towards the EURCAD pair amongst retail participants. According to the ActivTrades market sentiment tool, 72 percent of traders are bullish towards the EURCAD pair.
This is approaching an extreme one-way sentiment skew, which does not bode well for the bull case surrounding the EURCAD pair. We should also consider that the short and medium-term trend is bearish.
EURCAD Short-Term Technical Analysis
The four-hour time frame shows that the short-term trend in the EURCAD pair has remained bearish since late April. Interestingly, bulls will change the short-term trend if they move the price above the 1.4770 level.
If this does happen then the EURCAD pair could advance towards the 1.4840 and 1.4900 resistance levels. Failure to do this and the EURCAD pair could slump back towards the 1.4650 and 1.4580 levels.
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EURCAD Medium-Term Technical Analysis
Looking at the daily time frame chart, the EURCAD has formed a head and shoulders pattern, and the pair continues to consolidate around the neckline of the bearish price pattern.
The neckline of the pattern is found around the 1.4735 level. If the pattern is ignited to the downside then a decline towards the 1.4300 price area could happen. Bulls need to rally the pair above the 1.5100 level to invalidate the pattern.
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