EURCAD Back Above Key Support
31 August 2022
The EURCAD cross settled above the significant 1.30 level, likely forming a bullish reversal formation, with further gains possible in the following days.
Focus on EU inflation
In comparison to July's 8.9% increase, the annualized Harmonized Index of Consumer Prices (HICP) for the Eurozone increased by 9.1% in August, according to the most recent information released by Eurostat on Wednesday. A 9.0% print was expected by the market.
In August, the core inflation increased by 4.3% YoY, above predictions of 4.1%, and the 4.0% reported in July.
The monthly HICP for the old Continent increased to 0.5% in August from 0.1% in July and 1.1% expected. The core HICP increased by 0.5% this month, beating the 0.4% forecast and the -0.2% observed in July.
Following the inflation data, Joachim Nagel, the president of the German central bank and a member of the Governing Council of the European Central Bank (ECB), stated on Wednesday that the ECB "urgently needs to act decisively next week."
"Given that a 75 bps rate hike is not fully in prices in financial markets and that the tone of the press conference is likely to be hawkish, we expect the first response in financial markets to be higher rates, wider bond spreads, and a stronger EUR." economists at Nordea said.
Daily Chart seems bullish
As the EURCAD destroyed all the stop-losses below the psychological level of 1.30, it managed to return above that support comfortably. Therefore, as long as it trades above 1.30, the outlook seems optimistic.
The next target could be in the 1.32 region; if broken above, we might see another leg higher toward 1.34.
Alternatively, the support is at 1.30; if not held, bears might return, quickly pushing the euro toward the actual cycle lows near 1.2880.