EURCAD is trying to find the bottom

02 June 2022 164
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The EURCAD pair began a gradual decline at the beginning of 2021, and this downtrend continues to this day. There are still no obvious reasons for a trend reversal, however, euro buyers become more active from time to time, and EURCAD tries to correct at least part of its losses. It could happen this time as well.

 

The Canadian dollar feels very confident now - longstanding records in oil prices provide strong support for the currency. The Bank of Canada, in turn, continues to combat with sharply increased inflation by the key rate rise. As a result of regulator's meeting that was held yesterday, the key rate again increased by 0.5% and now stands at 1.5%.

 

Given the rise in inflation in Canada to 6.8%, the current increase in rates in the economy is clearly not the last one. However, the tightening of monetary policy has already been largely taken into account by the market, especially since it has already been going on throughout the spring.

 

As for the euro, market expectations will definitely be reconsidered. After the data on European inflation (which has already reached 8.1%) was published on Tuesday, there were calls for the ECB to raise the rate immediately by 0.5% at meetings in July and September. That's a pretty radical proposition considering Europe's key rate hasn't been raised since 2011 and the ECB deposit rate is at a negative -0.5% at all.

 

Now it seems that such a sharp increase in rates looks unlikely. However, market expectations can change very quickly and very abruptly, which has already happened several times this year. The comments of the ECB representatives after the meeting of June 9 may provide some certainty and they might be a good incentive for the EURCAD to bounce up.

 

A strong resistance level at 1.376 formed on the chart along with support at 1.34. There is a possibility to buy EURCAD now or wait for its move closer to 1.34 and open a position then.

 

 

Following options for a trading strategy can be offered:

 

1) Buy EURCAD at the current price. Take profit 1 - 1.36. Take profit 2 - 1.376. Stop loss - 1.34.

 

2) Buy EURCAD upon reaching the level of 1.34. Take profit 1 - 1.36. Take profit 2 - 1.376. Stop loss - 1.33.

 

Also, traders, at their discretion, can use Trailing stop instead of a fixed Stop loss.

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