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Overbought Conditions Heighten Bearish Pressure on EURCAD
Central Bank
Forex
Summary:
This rejection could mark the beginning of a new bearish phase, with the next key support zone seen near the 1.5520 level.
Sell
CLOSEDEURCAD
End Time
1.56071
Entry Price
1.55210
TP
1.56800
SL
1.55820 -0.01068 -0.68%
729
Points
Loss
1.55210
TP
1.56800
CLOSING
1.56071
Entry Price
1.56800
SL
Several officials from the European Central Bank (ECB) remarked on Tuesday that the institution’s strategic review will broadly endorse its previous policy decisions—most notably its quantitative easing (QE) programs—despite continued pushback from some policymakers. They also underlined that, following the review, the ECB will maintain its readiness to take "decisive action" during times of persistently low inflation and interest rates.
Gabriel Makhlouf, a member of the ECB Governing Council and Governor of the Central Bank of Ireland, warned that rising levels of uncertainty are dampening investment across the eurozone. He noted that recent soft economic indicators suggest a notable decline in both business confidence and consumer sentiment, raising concerns about the fragility of the region’s economic recovery.
Nonetheless, there were encouraging signs from Germany, where the ZEW Economic Sentiment Index surged to 25.2 in May from -14 in April—easily beating market expectations of 11.9. Similarly, the Eurozone ZEW Index rose sharply to 11.6 from -18.5, reflecting renewed optimism among market participants despite ongoing economic headwinds.
In terms of trade relations, both the European Union and Canada stand out as the only major economies that have not made notable progress in trade negotiations with the United States since President Donald Trump announced reciprocal tariffs. Anticipating a lack of resolution, the EU has prepared countermeasures in the event that talks break down. On Thursday, the European Commission published a public consultation paper outlining potential tariffs on up to €95 billion worth of U.S. imports—measures that could further inflame trade tensions between the two sides.
In other developments, Germany’s Harmonized Index of Consumer Prices (HICP) remained steady at 2.2% year-over-year in April. While the data came in broadly in line with expectations, it reinforced the broader disinflationary trend across the eurozone and supported growing speculation that the ECB may move toward a rate cut as early as June. Comments from ECB officials, including Isabel Schnabel, stressed the importance of maintaining the current policy stance given ongoing global uncertainties. Although not a catalyst for a strong rally, the combination of subdued inflation and a dovish tone from policymakers helped the euro stage a modest recovery after recent losses.
Meanwhile, Friday’s disappointing Canadian employment report—highlighting slow job creation and a rising unemployment rate—has weakened expectations of further rate hikes from the Bank of Canada (BoC). This has contributed to a softer tone in the Canadian dollar.
Crude oil prices have also played a role in adding pressure to the commodity-linked Canadian dollar. West Texas Intermediate (WTI) crude has stalled after a four-day rally, now trading near $63.00 per barrel at the time of writing, further limiting support for the CAD.
Technical Analysis
EUR/CAD has rallied strongly in recent sessions, filling the price gap left by the sharp downward opening on May 9. Although the pair made a previous attempt to close this gap, it fell short; this time, however, the gap has been fully filled, and price action has since turned lower. This rejection could mark the beginning of a new bearish phase, with the next key support zone seen near the 1.5520 level.
The Relative Strength Index (RSI) recently hit 74, placing the pair deep into overbought territory and suggesting the possibility of increased downward pressure in the short term. Additionally, the 100- and 200-period moving averages are situated at 1.5598 and 1.5621 respectively. A strong daily close below both moving averages could reinforce bearish momentum and accelerate the decline.
Conversely, if the price breaks above the 1.5670 level with conviction, it could invalidate the current bearish setup and open the door for a continuation of the upward move. For now, however, the overbought RSI and recent rejection at gap resistance favor a downside bias.
Trading Recommendations
Trading direction: Sell
Entry price: 1.5611
Target price: 1.5521
Stop loss: 1.5680
Validity: May 23, 2025 15:00:00
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