Since May, we have observed a full consolidation in the rates within a range of 1.4616-1.4815 CAD. We hadn't found the same situation in the EUR/CAD rates for a long time but how long is it going to last? At the moment, the Canadian dollar remains quite strong, because the rally in the oil market is supporting the CAD. However, this was not enough in the confrontation with the euro and the attempt to go down to the lows of 2019.
The latest macroeconomic reports in Canada were disappointing: in May, a trade deficit was recorded due to a drop in exports, and the number of permits issued for the construction of houses fell by 14.8%. Problems in the economy are certainly a deterrent for the CAD. Investors are afraid that the Bank of Canada will reconsider their plans to raise the rate. At the same time, the CAD has strong support, being a commodity currency that depends on oil prices, which this week reached another multi-year high. The OPEC+ meeting and negotiations on increasing oil extraction failed. Saudi Arabia and the UAE did not reach a compromise on quotas, and further meetings were canceled. Market experts predict a new price war, but if last year the price war led to a drop in prices to 0, then this time, everything ends with a price increase to $90-100. These are the prices that are predicted while maintaining the current production volumes in the absence of new agreements.
The euro is supported and strengthened due to strong macroeconomic reports. In particular, the IHS Markit manufacturing PMI in June reached a record high of 63.4 pips, and the composite index amounted to 59.5 pips, thanks to rapid recovery in the services sector. At the same time, the ECB revised up its GDP forecasts for 2022, which of course affected the attractiveness of the euro among investors.
Technical analysis tools are multidirectional. However, given the perspective of higher oil prices and the potential of the Canadian economy, we are choosing the deals to SELL today. Entry points can be marked also at the levels of 1.4616 and 1.4815.
