May 21, 2021 12:59:58

Canadian data and talk this week has helped support the loonie which is the best performing major currency on a one month basis by some distance. Governor Macklem didn’t express any undue concerns about the strength of the CAD while inflation rose above forecasts to 3.4% and just released retail sales were a beat, underpinning the hawkish outlook of the BoC. While falling commodity prices are a drag, the global macro backdrop is positive and this should help sustain the broader rally.

EUR/CAD rolling over

EUR/CAD has been in a downtrend since topping out at the end of December at 1.5785. Since then, prices have fallen with the oversold conditions in mid and late March retracing strongly before the bearish trend reasserted itself. The pair dipped below 1.46 last week before a textbook bounce to the 20-day EMA. The retracement flirted with the April lows around 1.4725 but have rolled over again in line with the dominant longer-term trend. Sellers can initially target the recent cycle low at 1.4582 before next support at 1.4416/20, with stops above the recent retrace.

NZD/CAD on the brink of breakdown

The RBNZ is not expected to spring any surprises at its meeting next week. Inflation concerns are rising but the transitory/temporary wording will probably be used with employment and activity remaining below potential.

NZD/CAD topped out in late February above 0.93 and also bounced in March and April. However, since then the pair has accelerated to the downside with a couple of notably strong down days followed by consolidation. We are now at the same point with prices compressing below 0.87. Oversold conditions have eased so a break of the recent lows around 0.8664/66 could see a strong move lower again. Put stops above the March low around 0.8739 and aim for last August’s lows at 0.8576.