We are bullish of the CAD in the crosses and we covered GBP/CAD in an article yesterday and in this article we will look at EUR/CAD which offers an extremely good risk to reward.

If you want to look at our view of GBP/CAD check out yesterdays article

In terms of EUR/CAD the euro has moved strongly to the upside into the Bank of Canada meeting later today...

Bank of Canada Interest Rate Cut Expected

The Bank is expected to cut the policy rate by 25bp at today's meeting This is within 4 bps of being priced in by markets (21bp), markets are currently expecting a total 65bp of easing by year-end or three cuts.

There is a strong case from data to continue easing after the June cut which is why the markets are seeing such a dovish BoC.

All measures of inflation are now within the 1-3% BoC tolerance band, with the headline and median core rates coming in below forecast in June at 2.7% and 2.6%.

The jobs market has seen more weakness than expected, with employment growth turning negative and the unemployment rate rising to 6.4% in June. The BoC’s business outlook survey also showed a further downturn in the second quarter.

The only argument for keeping rates on hold at this meeting is probably the divergence with the Fed. However, markets have grown increasingly confident about a Fed cut in September, and the BoC has so far shown little concerns about diverging. 

Bank of Canada Forward Guidance

Markets will focus on forward-looking guidance by the BoC. There is a strong possibility that Governor Tiff Macklem will strike a cautious tone on further cuts and say like other banks they will be data-dependent and adopt a meeting-by-meeting approach so a possible hawkish cut

On the other side of the pair. the market is seeing an EU economic recovery but at present major macro data is missing forecast and this will force the ECB to cut rates more than expected as we move forward.

Over the last two weeks on the COT Net Traders Positions, we have seen speculators buy the euro heavily and sell the CAD on the expected IE a rate cut from the BoC and a relatively hawkish ECB.

The bad news looks priced in for the CAD and we think any move against it will be short-lived, if we do break lower we expect a major correction as the large number of speculators who are long EUR/CAD are taken out on stop.

Technical Analysis

In our view sell break lower or on a break higher, Look for failure into Weekly resistance - Daily and weekly chart levels below.