EUR / CAD ready for reversal: when to evaluate the purchase?

EUR / CAD ready for reversal: when to evaluate the purchase?
EUR / CAD ready for reversal: when to evaluate the purchase?
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The strengthening of the Canadian dollar does not stop, benefiting from the rise in commodity prices and rates. For EUR / CAD key supports in sight

After the US dollar there is the Canadian one among the best performing currencies of 2022 against the euro. A surprise that cannot be defined as such considering the positive correlation that the Canadian currency has always had towards the prices of raw materials, primarily oil. But the monetary policy factor must also be considered. With repeated and anticipated increases in the cost of money, the CAD went from 1.45 at the beginning of 2022 to 1.30 today against the single moenta. However, inflation remains a problem and the markets are beginning to show some perplexity about the decisions taken by Prime Minister Trudeau.

The Canadian Premier has decided, despite the first trade surplus since 2014 thanks to the rise in commodity prices, to increase tax refunds and deductions in favor of citizens. An expansionary move that is added to the surpluses of the various Canadian provinces: Fuel on the fire of inflation with the work of the Bank of Canada to increase the cost of money that could in part be nullified. The country already has the highest official rates of the G10 today.

Last week’s rise of 75 basis points brought the cost of borrowing to 3.25% in an attempt to bring inflation back to 2%. Difficult work given that consumer prices travel at the rate of 7.6%. However, the Canadian dollar remains a high beta currency relative to the stock market. The correlation rate to the S&P 500 is 0.5, higher than that to copper and oil which have a milder positive correlation of 0.2.

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EUR / CAD: prices close to the primary low?

EUR / CAD is in a rather clear technical structure, with the downtrend starting in 2021 continuing without major interruptions. The one-year rate of change has fallen below 10% and this is a first indication of a possible bottom on the horizon. As we can see, every time the annual rate of change falls below this threshold we are close to a primary low. This condition seems to be reinforced by the presence of static supports that are between 1.30 and 1.21.

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A further bearish push is therefore not excluded, but the best of this downward trend seems to be behind us. It is always difficult to implement a long strategy when the currency that is hoped to lose value has a higher return than the one chosen to buy. Financing in Canadians to buy euros has a considerable cost and therefore the long will require an entry work as close as possible to the 1.21 area. Patience if it starts up again now: the most favorable risk-return ratio will be found only with a few less figures.


The article is in Italian

Tags: EUR CAD ready reversal evaluate purchase

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