In this currency pair, we observe processes similar to EURUSD based on the monetary policy of the two countries. Just like the US Federal Reserve, the Bank of Canada actively raised the rate in 2022, and now it's the turn of the ECB with the subsequent strengthening of the euro. However, in the situation with the Canadian dollar, oil prices are also important, which fall amid pessimistic forecasts for demand and large stocks in the US, putting pressure on the CAD, which allows the euro to strengthen even more.
This week the focus was on EU inflation reports and the ECB meeting. As it became known, inflation has slowed down, but remains excessively high, which forced the regulator to raise the rate by 50 pips. Plans to reduce inflation from 8.5% to 2% give reason to expect a new increase in rates this year. The ECB will be catching up with other central banks in their interest rate rally, which makes investing in the euro attractive to investors.
As it became known this week, Canada's GDP in November was only +0.1%, and in annual terms +2.8% lagging behind forecasts. The number of building permits was also disappointing with a decline of -7.3%. The recession of the economy has not been so obvious for a long time.
Despite some consolidation in the uptrend, we believe that the peak has not been reached and expect further growth during the year. Most of the technical analysis tools support our forecasts and show a buy signal. Therefore, our choice today without any doubt is investment in euros.
