The EUR/CAD cross has been experiencing a downtrend over the past week, with the euro weakening against the Canadian dollar. The cross reached a nearly three-month low at around 1.4285-1.4280 in the early European session.
The Bank of Canada’s surprise 25 basis point rate hike on Wednesday, coupled with a slight increase in crude oil prices, has supported the Canadian dollar and put pressure on the EUR/CAD cross. The rate hike was unexpected, and the central bank cited concerns about inflation exceeding the 2% target as a reason for the move. Market participants have already started pricing in another rate increase next month, which contributes to the relative strength of the Canadian dollar and weighs on the EUR/CAD cross.
However, the euro finds some support from a slight decline in the US dollar and increasing expectations for further rate hikes by the European Central Bank (ECB). ECB President Christine Lagarde recently indicated that more interest rate increases were likely, as there is no clear evidence that underlying inflation has peaked. This aligns with hawkish comments from other ECB officials and suggests that the central bank is not finished raising rates despite a decline in consumer inflation.
Given the mixed fundamental backdrop and the fact that the Relative Strength Index (RSI) on the daily chart is approaching oversold territory, caution is advised for bearish traders. Waiting for some consolidation or a modest bounce before taking further bearish positions in the EUR/CAD cross could be prudent.