EUR/CAD Price Forecast: Retains bullish bias near 1.6000, Canadian jobs report in the spotlight
- EUR/CAD loses momentum near 1.6000 in Friday’s early European session.
- Positive outlook of the cross prevails above the 100-day EMA, with bullish momentum in the near term.
- The immediate resistance level is seen at 1.6054; the initial support level is located at 1.5900.
The EUR/CAD cross attracts some sellers to around 1.6000 during the early European trading hours on Friday. All eyes will be on the Canadian employment report for July, which is due later on Friday. Canada is expected to show moderate job growth and a higher Unemployment Rate in July. If the report shows a weaker-than-expected outcome, this could weigh on the Canadian Dollar (CAD) and create a tailwind for the cross.
Technically, EUR/CAD keeps the bullish vibe on the daily chart, with the price holding above the key 100-day Exponential Moving Average (EMA). The path of least resistance is to the upside, as the 14-day Relative Strength Index (RSI) stands above the midline. This suggests bullish momentum in the near term.
The first upside target to watch for the cross is seen at 1.6054, the high of August 7. Extended gains could see a rally to 1.6100, representing the psychological mark and the upper boundary of the Bollinger Band. Further north, the next hurdle is located at 1.6152, the weekly high of March 16, 2018.
On the other hand, the initial support level for the cross emerges at 1.5900, the round figure and the low of August 5. A breach of this level could expose 1.5815, the lower limit of the Bollinger Band. The additional downside filter to watch is 1.5740, the 100-day EMA.
EUR/CAD Daily Chart
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
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