EUR/CAD extended its near term rally today as increasingly hawkish rhetoric from senior European Central Bank officials continued pushing markets toward pricing a June rate hike, while falling oil prices added renewed pressure on Canadian Dollar. The pair resumed its rebound from 1.5941 and is now approaching the key 1.6148 resistance zone, with broader momentum increasingly favoring further upside.
The Euro side of the equation has been driven by a coordinated shift in ECB communication this week. French ECB Governing Council member Francois Villeroy de Galhau said today that policymakers would “do what is necessary to bring inflation back to 2% in the medium term,” while emphasizing the need to prevent energy-driven inflation from feeding into broader pricing behavior. “We should be extremely vigilant about possible second-round effects,” Villeroy said, adding, “have no doubt we will act as much as necessary.”
Those comments reinforced already hawkish signals from ECB Chief Economist Philip Lane and Executive Board member Isabel Schnabel earlier this week. Lane signaled that the ECB is preparing another upward revision to inflation forecasts and indicated policymakers are comfortable with current market pricing for tighter policy. Schnabel took an even firmer stance, arguing that “looking through is no longer an option” and stating directly that “a rate hike in June will be needed.”
Meanwhile, Canadian Dollar continues losing support from oil markets as hopes for a US-Iran agreement and reopening of the Strait of Hormuz weigh heavily on crude prices. With Brent crude falling sharply from last week’s highs to the mid-$90 area. Markets are also firmly expecting the Bank of Canada to remain on hold for the rest of the year.
Technically, EUR/CAD’s rise from 1.5914 extends today and it’s on track to 1.6148 resistance. Firm break of 1.6148 will solidify the case that near term consolidation from 1.6247 has completed, and rise from 1.5610 is ready to resume. Break of 1.6247 will target 61.8% projection of 1.5610 to 1.6247 from 1.5941 at 1.6335 next. Nevertheless, below 1.6036 minor support will delay the bullish case and bring more sideway trading first.
