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EUR/CAD dropped lower on the session after the latest monetary policy statement from the Bank of Canada…is this the start of a fresh leg lower?

EUR/CAD Downside Momentum?

EUR/CAD Daily Forex Chart
EUR/CAD Daily Forex Chart

The Loonie popped higher today after the the Bank of Canada just released an optimistic monetary policy statement. They upgraded their 2021 growth outlook for Canada, enough so to reduce their bond purchasing program down to CAD$3B per month.

This first step towards reducing stimulus measures is probably a game changer for the Loonie as traders will likely continue to price in reduced stimulus (or maybe even the potential for rate hikes in 2022), and it’s likely the Loonie will outperform the other majors as long as other central banks continue to maintain the extreme stimulus measures needed to combat the pandemic economic damage.

But the volatility for EUR/CAD may not stop with today’s BOC statement as we’ll get the latest monetary policy statement from the European Central Bank tomorrow at 12:45 pm GMT. Expectations are for the ECB to hold off on changes to policy as covid developments in Europe continue to be uncertain and very fluid (e.g., vaccination setbacks, continued lockdowns, etc.). The odds are likely that we’ll see cautious rhetoric from the ECB, which leans the odds more in line with a bearish euro reaction than a bullish one if that scenario plays out.

Overall, the odds seem to favor the bears in EUR/CAD in all time frames, and for  the longer-term players out there, we’ve got bearish chart signals that could draw in more technical sellers to join the fundamental players.

On the daily chart above, we can see the pair is currently bouncing in a fresh downtrend, now testing the Fibonacci retracement area as stochastic signals potentially overbought conditions.

The ECB meeting is currently the biggest X factor to what comes next for price, but unless with get a highly optimistic statement tomorrow, odds are that traders will look to short from current levels up to the broken support area around the 1.5300 handle.

We’re watching out for these potential price and news scenarios, and if they play out and bearish patterns form, we’ll structure a short position for a medium to longer-term timeframe trade.

What do you guys think? Is this the start of a new leg lower in EUR/CAD? How would you structure a trade if you do think the pair is ready to resume the downtrend? 

Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

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