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Correction Looming as Price Enters Oversold Territory
Central Bank
Forex
Summary:
This combination suggests that the bullish momentum is rapidly weakening, opening the door for a decisive downward correction.
Sell
PENDINGEURCAD
EXP
1.63250
Entry Price
1.61710
TP
1.63800
SL
1.62011 -0.00353 -0.22%
--
Point
PENDING
1.61710
TP
CLOSING
1.63250
Entry Price
1.63800
SL
Economic data from the Eurozone continues to signal weak consumer demand. According to Eurostat data, Eurozone retail sales declined by 0.1% month-over-month in September, falling short of market expectations for a 0.2% increase. The previous month’s reading was also revised down to a 0.1% drop from an initial 0.1% gain. Annually, retail sales rose by 1.0%, in line with forecasts but slower than the 1.6% growth recorded in August. These figures underscore the persistent weakness in consumer spending, indicating that households remain cautious despite easing inflation pressures across the region.
The Eurozone data also confirmed a limited improvement in manufacturing activity, suggesting a gradual stabilization rather than outright expansion. The HCOB Manufacturing Purchasing Managers’ Index (PMI) settled at 50.0 in October, a marginal increase from 49.8, signifying production stagnation. National figures were mixed: Germany (49.6), France (48.8), Italy (49.9), and Spain (52.1).
ECB and BoC Policy Divergence
On the monetary front, European Central Bank (ECB) policymakers are maintaining a cautious, steady stance. François Villeroy de Galhau, Governor of the Bank of France, stated the ECB is "in a good position" after its October rate decision but stressed the need for full flexibility amid market risks. His Latvian counterpart, Martins Kazaks, reinforced this, noting that risks to inflation and growth are now more balanced, supporting the argument to keep current rates unchanged for longer.
In contrast, the Bank of Canada (BoC) cut its key policy rate by 25 basis points (bps) to 2.25% last week. The BoC concurrently emphasized its readiness to adjust policy further if Canada's economic outlook deteriorates. The Canadian government is supporting this dovish monetary shift with increased fiscal spending aimed at boosting capital investment. The budget deficit is now projected to be -2.5% of GDP for 2025/26 and -2.0% for 2026/27, representing a significant increase from earlier projections.
Adding to the currency pressure, Canadian Prime Minister Mark Carney reportedly apologized to President Donald Trump for an anti-tariff announcement that led to the suspension of trade negotiations. However, Trump allegedly rejected the resumption of talks, keeping high uncertainty over bilateral trade relations. All eyes will now turn to Canada's October employment figures on Friday, where further increases in the unemployment rate (currently at 7.1%) should fuel further dovish bets on the CAD.
Technical Analysis
EUR/CAD has experienced a strong bullish surge, originating from the local low of 1.6140 on October 31st and rapidly approaching the significant resistance level at 1.6325, having reached a high of 1.6311. This 1.6325 level is critical, as the price has twice reacted sharply lower from it recently.
Adding considerable weight to the possibility of a reversal is the technical exhaustion signaled by the Relative Strength Index (RSI) . The RSI has spiked rapidly to 75, clearly entering overbought territory. Furthermore, the move has created a bearish divergence compared to the two previous times the price approached this zone, with the RSI now significantly higher. This combination suggests that the bullish momentum is rapidly weakening, opening the door for a decisive downward correction.
The 100- and 200-period Moving Averages (MAs) are closely positioned at 1.6263 and 1.6280 respectively on the 4-hour chart. Should the price be quickly rejected from resistance and close decisively below these converging MAs, the bearish impulse could accelerate toward the immediate downside support at 1.6171. Conversely, a strong breakout above the key resistance level of 1.6325 would invalidate the bearish setup and pave the way for additional bullish momentum.
Trading Recommendations
Trading direction: Sell
Entry price: 1.6325
Target price: 1.6171
Stop loss: 1.6380
Validity: Nov 18, 2025 15:00:00
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