Facts:
- EUR/CAD is trading 2 standard deviations above the 200-day simple moving average (SMA200).
- The Bank of Canada (BoC) would have likely kept rates at 3% if not for risks related to US-imposed tariffs, according to minutes from its latest monetary policy meeting.
- Bloomberg forecasts a 25 basis point rate cut in the Eurozone in April with a 78.3% probability (OIS model).
Recommendation:
- Trade: Short position (SELL) on EUR/CAD at the market price.
- Take Profit (TP): 1.5171 (TP1), 1.5050 (TP2)
- Stop Loss (SL): 1.5675
Source: xStation5
Opinion:
At the beginning of March, EURCAD surged well above SMA200 (purple), reaching its highest level since July 2020, just before the BoC’s latest rate decision. Markets had expected a 25 bps rate cut, but the hawkish tone of the recently released meeting minutes surprised investors. The document stated that the rate cut aimed to support Canadians amid tariff war uncertainty—without it, rates would have remained at 3%.
Following the decision, EURCAD began to depreciate gradually, and downward pressure may persist until the upcoming ECB rate decision on April 17. Expectations for an April cut have risen to nearly 80% (from 70% last week).
- Relative CAD strengthening vs. EUR is also visible in the bond market, where the yield spread between German and Canadian 10-year bonds has been narrowing since the BoC’s decision.
- Increasingly dovish comments from ECB officials reinforce expectations for a rate cut, highlighting risks to economic growth in the Eurozone:
- Yannis Stournaras (Econostream): “Everything points in the direction of a cut in April.”
- Piero Cipollone (Reuters): “The inflation target may be reached sooner than the last projections indicated.”
- Luis de Guindos (Reuters): “Main impact of tariffs on growth and short-lived impact on inflation.”
Methodology:
- The recommendation is based on a technical analysis of the EUR/CAD chart and fundamental analysis of monetary policy in both economies.
- The expected EUR depreciation against CAD is driven by BoC and ECB communications, suggesting a narrowing interest rate differential (further easing of monetary policy in the Eurozone).
- Take Profit 1 (TP1) is set at 61.8% Fibonacci retracement, while TP2 is slightly above SMA200 (a key support level for the current uptrend), aiming to exit before a potential rebound.
- Stop Loss (SL) is placed above the 23.6% Fibonacci retracement resistance level, which preceded the latest downtrend series.
