Looming Break in Canadian Dollar After BOC Hike: USD/CAD, EUR/CAD, GBP/CAD Price Setups
The recent increase in the overnight rate by the Bank of Canada (BOC) to 4.75%, marking a 22-year high, may have bolstered the Canadian dollar’s performance against certain currencies. The BOC justified this decision by citing concerns over the potential for Consumer Price Index (CPI) inflation to surpass its 2% target. However, the central bank has now shifted towards a more data-driven approach and has eliminated its previous statement from April indicating that it was “prepared to raise the policy rate further.” According to market projections, there may be another rate hike in July, with a terminal rate of 5.15% expected by year-end.
IG Client Sentiment
Technical charts are growing supportive of CAD against some of its peers.
USD/CAD: Looming bearish break
Although the USD/CAD exchange rate has remained stable for several months, indications suggest that a significant trend may be on the horizon. The exchange rate is currently being tested at a critical level of converged support between 1.3220-1.3320. If this level is breached, it may pave the way for a downward trend, with potential to reach the psychological threshold of 1.3000 and possibly even the August low of 1.2725.
USD/CAD Daily Chart
In addition, the IG Client Sentiment (IGCS) indicates that 70% of retail traders hold a net-long position, with a long to short ratio of 2.3 to 1. Notably, the number of net-long traders has increased by a significant 74% compared to the previous week. The IGCS data occasionally serves as a contrarian indicator, where the high number of net-long traders may lower the bar for potential declines in USD/CAD.
GBP/CAD Daily Chart
In addition, the IG Client Sentiment (IGCS) indicates that 70% of retail traders hold a net-long position, with a long to short ratio of 2.3 to 1. Notably, the number of net-long traders has increased by a significant 74% compared to the previous week. The IGCS data occasionally serves as a contrarian indicator, where the high number of net-long traders may lower the bar for potential declines in USD/CAD.
EUR/CAD: A minor pause on the cards?
The EUR/CAD currency pair is currently nearing an important convergence point where the 200-day moving average and a horizontal trendline from January intersect, approximately at a value of 1.4235. Although oversold conditions suggest a small rebound, it may not be sustainable due to the recent drop below the 89-day moving average and Ichimoku cloud on the daily chart. If the value drops below 1.4235, it could lead to potential risks towards 1.4000. Conversely, surpassing the late-May high of 1.4650 may prove to be challenging.
