The EURCAD is flat despite the release of the Euro inflation data earlier today as economic uncertainties cloud the horizon. On the one hand, Eurozone inflation defied expectations, edging higher but lower-than-expected, despite a cooling core rate. This mixed bag leaves the ECB’s next move shrouded in fog, keeping EURCAD on its toes. On the other hand, Canada’s job market worries and a weaker service sector cast a shadow on the Loonie, adding to the pair’s volatile dance.
Euro inflation surprised, climbing to 2.9% year-on-year from 2.4% in November, mainly driven by base effects in the energy sector. However, core inflation, excluding volatile elements, eased to 3.4%, aligning with expectations and marking its lowest point since March 2022. This mixed signal leaves the ECB in a tricky situation, fuelling the debate on whether to stick to its hawkish tightening stance or consider rate cuts as core inflation softens.
The Canadian Dollar weakened as oil prices dipped, adding to existing anxieties about a potential recession. Also, Canada’s service sector contracted for the seventh consecutive month, raising concerns about an economic slowdown.
All eyes are glued to Friday’s employment report, with a robust showing potentially reviving rate hike bets and boosting the Loonie. A weak reading could fuel recession fears and send EURCAD higher.
Technical
EURCAD currently hovers around 1.45941, trapped within a descending triangle pattern on the 4-hour chart. Price action recently broke below the 20-SMA (green line) and 50-SMA (blue line), but the 100-SMA (orange line) continues to hold firm.
The RSI is relatively flat at 47.24, indicating indecision, while the RSI-based MA is at 48.29. Short-term opportunities may emerge towards the triangle’s support at 1.45561, with a potential breach likely targeting the 1.45195 support. Conversely, sustained bullish momentum could lead to resistance at the 1.46254 level, with a break above confirming a potential move towards the 1.44609 resistance.
Summary
EURCAD stands at a pivotal juncture, with Friday’s Canadian employment report holding the key to breaking the technical deadlock. A positive jobs figure could strengthen the Loonie, potentially pushing EURCAD lower. Conversely, a disappointing report might weaken the Canadian Dollar, sending EURCAD towards resistance levels. The tug-of-war between economic data and market sentiment will likely dictate the pair’s next move.
Sources: TradingView, Trading Economics, Reuters, EUROSTAT, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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