EUR/CAD steady around 1.4420 approaching solid resistance at 1.4440

• EUR/CAD extends its three-day rally, closes robust resistance at 1.4440.
• Dovish ECB stance has the potential of weighing on in the EUR.
• The Bank of Canada ended its QE program, could hike rates by April 2022.

The EUR/CAD pair begins the week in the right foot, flat as Tuesday’s Asian Pacific session begins, trading at 1.4420 at the time of writing. On Monday, US equities finished in the green, gaining between 0.09% and 0.29%, except for the Nasdaq Composite, which lost 0.14%.

ECB and BoC monetary policy divergence favors the Canadian dollar

On Monday, ECB’s Chief Economist Philip Lane crossed the wires. He said that elevated prices are temporary. Further added that the ECB believes that in 2022 bottlenecks and energy prices will ease or stabilize, according to El Pais.
Inflation rose by 4.1% on an annual basis in the Euro Area, up from 3.4%. Finance ministers are starting to worry that the jump could spur solid wage growth, triggering an inflationary spiral.

STIR in the Eurozone area retreated, as ECB policymakers led by ECB’s President Christine Lagarde reiterated that inflation is temporary and would moderate once supply constraints ease and shipping conditions improve. Also, ECB President Lagarde pushed back higher rates at the press conference after the monetary policy meeting, insisting that prices would ease.

Meanwhile, the Bank of Canada ended its QE program on October 27, which market participants viewed as a very hawkish taper announcement. Although a reduction in their bond purchasing program was expected, as the labor market recovered to pre-pandemic levels, the end of the program caught investors off guard. 

Further, the BoC said it could begin hiking interest rates in April, three months sooner than previously thought. That to tackle inflation, which in September rose to 4.4%, the highest in two decades.

Money markets expect a hike as soon as March and five in total next year. Tightening cycles tend to slow economic activity.

That said, the EUR/CAD lies on the dynamics of the divergence between the ECB and the BoC. As long as the BoC keeps its hawkish stance and the ECB remains dovish, EUR/CAD traders could probably witness new year-to-date lows from the near term until the end of 2021.

EUR/CAD Price Forecast: Technical outlook

The daily chart shows that the EUR/CAD pair has remained trapped on the price action of October 27, within the 1.4292-1.4441 range, range-bound, tilted to an upward break at press time. However, the pair has mid-term downward bias as long as the daily moving averages (DMA’s) are still well above the spot price around the 1.4605 level. Furthermore, the Relative Strength Index (RSI), at 46, confirms the mid-term bias, so EUR/CAD sellers could be found around the 1.4400 area, as It was tested three times before.

To resume the downward bias, EUR/CAD sellers would need to reclaim the 1.4300 figure. In that outcome, the following demand zone would be February 16, 2020, low at  1.4263.

On the other hand, an upside break above the 1.4441 range would expose the 1.4500 figure as its first resistance level. A break above the abovementioned would expose the 50-day moving average (DMA) at 1.4625.