Summary:

The ECB delivered a hawkish cut in its June meeting, signaling that the future path of cuts is uncertain due to near-term upside inflation risks. As a result, the EUR could strengthen temporarily due to domestic price pressures, the ECB's hawkish stance, and gradually improving economic conditions. In contrast, the BoC indicated that if inflation continues to ease and confidence grows that inflation is sustainably heading toward the 2% target, further rate cuts can be expected. If the Fed holds rates this week, there will be a clear policy divergence between the Fed and the BoC.

EUR/CAD 4H

Macro View:

EUR: As expected, the ECB delivered a 'hawkish cut' in its June meeting. Despite the rate cut, the Governing Council indicated that the future path of rate cuts remains uncertain due to persistent upside inflation risks in the coming months. Domestic price pressures remain strong due to elevated wage growth, likely keeping inflation above target well into next year. As a result, the ECB revised its projections for both headline and core inflation for 2024 and 2025, compared to the March projections. Headline inflation is now expected to be 2.5% in 2024, up from 2.3%, and core inflation is projected at 2.8% in 2024, up from 2.6%. Additionally, with improving economic conditions in the eurozone, as evidenced by the Q1 GDP growth of +0.3% q/q, the Governing Council foresees continued growth and stability in the eurozone economy. Overall, due to concerns about domestic price pressures, optimistic economic conditions, and the hawkish signals from the June meeting, the strength of the EUR is likely to continue for the time being.

CAD: As expected, the Bank of Canada (BoC) cut the rate to 4.75% in the June meeting. The BoC signaled that if inflation continues to ease and confidence grows that inflation is heading sustainably toward the 2% target, further rate cuts can be expected. However, Governor Macklem cautioned that lowering the policy rate too quickly could jeopardize inflation progress, indicating that the next cut is more likely in September, though a cut in July can't be ruled out if underlying inflation pressures ease further. The BoC’s decision to start its rate cut cycle ahead of the Federal Reserve, which appears unlikely to cut rates until September unless there is a sharp slowdown in employment growth, has opened up a window of widening policy divergence in the near term.

FX View:

DXM: A Tool to Gauge Retail Sentiments

EUR/CAD Current Retail Long/Short Position

The DXM shows that 32% of traders are bullish, while the remaining 68% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

Seasonality Analysis: The Historical Movement of the Currencies  

EUR Futures’ seasonality movement

The seasonal pattern for the EUR suggests bullish momentum in the near term.

CAD Futures’ seasonality movement

The seasonal pattern for the CAD suggests bearish momentum in the near term.

Sources: Prime Market Terminal

Disclaimer: This material is provided for informational purposes only and does not constitute financial, investment or other advice. No opinion contained in this material constitutes a recommendation by Trive International or its author as to any particular investment, transaction or investment strategy and should not be relied upon in making any investment decision. In particular, the information does not consider the individual investment objectives or financial circumstances of the individual investor Trive International shall not be liable for any loss, damage or injury arising from the use of this information. Trive International may or may not be able to provide equity in the companies. The value of your investment may go down as well as up.