Week Ahead: EURCAD ready to breakout?

• Big week for minor currency pair

• BoC + ECB rate decisions in focus

• EURCAD trapped within 300 pip range
  

• Prices gaining bullish momentum on D1

• Bloomberg model: 76% chance EURCAD – (1.45454 – 1.48439)

Key central bank decisions, speeches from policymakers, high-impact data, and earnings announcements by US banks may inject markets with fresh volatility next week:

Sunday, 7th April

• CNH: China forex reserves

Monday, 8th April

• GER40: Germany industrial production
• JPY: Japan current account balance
• CHF: SNB President Thomas Jordan speech
• SEK: Riksbank Governor Erik Thedeen speech
• USD: Minneapolis Fed President Neel Kashkari speech

Tuesday, 9th April

• AU200: Australia consumer confidence
• CN50: China aggregate financing, money supply, new yuan loans
• TWN: Taiwan CPI
• CHF: SNB Vice Chair Martin Schlegel speech
• SEK: Riksbank Deputy Governor Martin Floden speech
• ZAR: South Africa manufacturing production

Wednesday, 10th April  

• CAD: BoC rate decision
• JP225: Japan PPI
• NZD: RBNZ rate decision
• TWN: Taiwan trade
• NAS100: US March CPI, FOMC minutes, Chicago Fed President Austan Goolsbee speech

Thursday, 11th April

• CN50: China CPI, PPI
• EUR: ECB rate decision
• US30: US initial jobless claims, PPI, New York Fed President John Williams, Boston Fed President Susan Collins speech
• GBP: BOE policymaker Megan Greene speech
• SEK: Riksbank Deputy Governor Per Jansson speech

Friday, 12th April

• CAD: Canada existing home sales
• CNH: China trade
• GER40: Germany CPI
• JP225: Japan industrial production
• NZD: New Zealand food prices, PMI
• UK100: UK industrial production, Manufacturing production, Trade balance, GDP (MoM)
• USD: University of Michigan consumer sentiment, San Francisco Fed President Mary Daly speech
• US500: Citigroup, JPMorgan and Wells Fargo earnings

The spotlight shines on the EURCAD which has been trapped within a 300-pip range since December 2023.

Given how the Bank of Canada (BoC) and European Central Bank (ECB) rate decisions have the potential to rock the minor currency, a major breakout may be on the horizon.

Here are 3 reasons why:

  1) BoC rate decision

The Bank of Canada is expected to leave interest rates unchanged at 5% on Wednesday.

When considering the two consecutive downside surprises in inflation, expectations are rising over the central bank cutting interest rates in summer. Nevertheless, much attention will be directed towards the policy statement for fresh insight into the central bank’s future rate decisions.

Traders are currently pricing in a 72% probability of a 25-basis point BoC cut by June 2024 with a move fully priced in by July.

• Should the BoC hint that a rate cut could be on the horizon, the CAD is likely to weaken – boosting the USDCAD as a result.

• If the BoC signals that more time may be needed before rates are lowered, this could lend support to the CAD – dragging the USDCAD lower.

  2) ECB rate decision

Markets widely expect the European Central Bank to leave interest rates unchanged on Thursday.

Back in March, the European Central Bank signalled that interest rates could be cut by June after lowering its forecast for inflation. So much focus will be on Lagarde’s press conference for additional clues on future policy moves, especially after inflation fell to 2.4% in March – its lowest rate in more than two years.

Traders are currently pricing in a 92% probability of a 25-basis point ECB cut by June with a move fully priced in by July.

• A dovish sounding ECB that confirms that rates will be cut in June may hit the euro, sending the EURCAD lower.

• If the ECB sounds more hawkish than expected, the euro may jump – pushing the EURCAD higher.

  3) Technical forces

EURCAD seems to be gaining bullish momentum on the daily charts with prices trading above the 50, 100 and 200-day SMA.

• A solid breakout above 1.4700 may trigger a move towards 1.4750 which has proved a tough nut to crack. Should bulls secure a solid daily close above this level, it could open the doors towards 1.4850.

• Should prices drop below the 100-day SMA at 1.4665, this could trigger a selloff towards the 50-day SMA and 200-day SMA at 1.4620. Below this point, will be the low at 1.4545.

The Bloomberg FX model now forecasts a 76% chance that EURCAD will trade within the 1.45454 – 1.48439 range through next week.