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The EURCAD pair represents the exchange rate between the Euro and the Canadian Dollar and is a vital measure of the relative economic health of the Eurozone and Canada. The Euro value is influenced mainly by economic activities and monetary policies within the Eurozone, including fiscal stability and economic growth rates of member countries such as Germany and France. At the same time, the Canadian Dollar is notably affected by fluctuations in commodity prices, oil in particular, and domestic economic policies.

Canada interest rate decision, June 5, 15:45 (GMT+2)

If the forecast that the Canadian interest rate remains steady at 5.00% is confirmed, it could strengthen the Canadian Dollar since it would reflect confidence in stability and growth. Such a scenario suggests a decrease in the EURCAD rate. However, suppose the regulator unexpectedly cuts the interest rate. In that case, it will indicate a potential economic slowdown or concerns and will likely weaken the Canadian Dollar against the Euro, causing the EURCAD rate to rise.

Eurozone interest rate decision, June 6, 14:15 (GMT+2)

If the anticipated decrease in Eurozone interest rates from 4.50% to 4.25% is confirmed, it could weaken the Euro as lower rates may reduce the currency’s attractiveness to yield-seeking investors. This would likely depress the EURCAD rate. Conversely, if the rate remained steady or increased contrary to expectations, it would signal a more robust economic outlook or rising inflation concerns. In this case, the Euro could strengthen, potentially elevating the EURCAD rate.

European Central Bank press conference, June 6, 14:45 (GMT+2)

A dovish tone at this press conference, confirming the rate cut and expressing concerns about the economic outlook, would likely pressure the Euro downwards against the Canadian dollar. On the other hand, a hawkish tone from the ECB, suggesting robust economic health or a reduction in financial risks, could boost the Euro’s value, leading to an increase in the EURCAD exchange rate.

In the daily timeframe, EURCAD has formed inverse head and shoulders in a long-term uptrend. The price has reached an important resistance at 23.6 Fibonacci, and despite the bullish sentiment, two possible scenarios should be considered.

• If the bulls push EURCAD above the resistance at 1.4840, we can expect a rise to 1.4940;
• However, if the price rebounds from the resistance, it could fall to 1.4700, corresponding to 38.2 Fibonacci.

The OPEC+ meeting over the weekend did not have a substantial impact on the price of crude oil. As the chart shows, WTI oil opened today at $76.72 per barrel, while on Friday it closed at $76.57 – indicating that the decision made by oil producers is ambiguous.

The bullish argument is that restrictions on oil production to maintain its price will continue. According to Reuters, on Sunday, OPEC+ members agreed to extend the production cuts of 3.66 million barrels per day until the end of 2025.

The bearish argument is that eight OPEC+ countries have already signalled plans to gradually phase out voluntary cuts of 2.2 million barrels per day from October 2024 to September 2025.

Goldman Sachs analysts overall assessed the results of the meeting as more bearish for the market. "The communication of a gradual unwind reflects a strong desire to bring back production of several members given high spare capacity," they wrote.

The WTI crude oil chart shows that the market is breaking the upward trend (shown in blue), which we mentioned in our review on 10 May.

Since then, bulls attempted to resume the upward trend, but this only resulted in a false breakout of the psychological level of $80 per barrel on 29 May (indicated by an arrow).

Afterwards, bears regained control and sharply pushed the price below the lower boundary of the blue upward channel, making the downward channel (shown in red), which began in April, more relevant.

According to the technical analysis of the oil chart:

→ the price is near the median line of the red channel – a sign of temporary equilibrium between supply and demand;

→ below the current WTI crude oil price is an important level of $75.75, which provided support back at the end of winter.

If the bulls attempt a comeback (which would require fundamental drivers), the upper boundary of the downward channel may resist the price.

If the geopolitical situation in the Middle East does not escalate, the bears may continue to exert pressure aiming to break the $75.75 level – which would likely slow inflation and benefit the current U.S. administration ahead of the upcoming presidential elections.

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The Euro started to lose traction in European trading on Monday, adding to initial warning from Friday’s daily candle with long upper shadow, which was formed after strong upside rejection.

Initial signal of two-day recovery stall was boosted by a double-top formation on hourly chart (1.0858).

Fresh weakness needs to clear pivotal support at 1.0825 (20DMA) to add to downside prospects.

Daily studies are mixed as 14-d momentum is heading south and MA’s remain in bullish setup, though near-term bias expected to remain with bulls while the price stays above 20DMA and larger bulls to remain in play above daily cloud top / 200DMA (1.0791/85).

Weekly long-legged Doji candle also contribute to uncertain near-term outlook.

Fundamentals are expected to play significant role this week, as markets focus on EU PMI’s, reports from the US labor sector and key event of the week – ECB policy meeting, with wide expectations for the first rate cut.

Markets will also closely watch ECB’s comments and economic projections, to get more details about the central bank’s action on monetary policy in coming months..

Res: 1.0858; 1.0882; 1.0895; 1.0942.
Sup: 1.0825; 1.0810; 1.0785; 1.0748.

The euro has posted slight losses on Monday. EUR/USD is trading at 1.0835 in the European session, down 0.11% on the day.

Eurozone manufacturing close to stabilizing

The eurozone manufacturing sector is still contracting but there is light at the end of the tunnel. The manufacturing PMI rose to 47.3 in May, up from 45.7 in April and just shy of the market estimate of 47.4. The reading was the highest in 14 months. Business confidence in future manufacturing conditions also rose and hit its highest level in more than two years.

Germany, the largest economy in the eurozone, also saw a softer contraction in manufacturing production. Manufacturing PMI accelerated to 45.4, up from 42.5 in April and in line with expectations. The eurozone and Germany release services PMIs on Tuesday, with both releases expected to show growth.

It could be a historic week for the European Central Bank, which is widely expected to lower interest rates at Thursday’s meeting for the first time since March 2016. The ECB’s steep rate-tightening cycle has seen inflation fall from double-digits to the current rate of 2.6%. This is still above the ECB’s target of 2%, but the central bank is sufficiently confident that inflation won’t rebound after a rate cut. The May CPI report, released last week, showed that headline and core CPI accelerated unexpectedly, but that is unlikely to derail the expected decision to lower rates.

The US released the Personal Consumption Expenditure price index, the Federal Reserve’s favorite inflation indicator, on Friday. The indicator was unchanged at 2.7% y/y and 0.3% m/m in line with expectations. This points to inflation remaining sticky as the Fed tries to push it down to the 2% target.

EUR/USD Technical

• EUR/USD is testing support at 1.0842. Below, there is support at 1.0741
• 1.0895 and 1.0943 are the next lines of resistance

• EURCHF hits a fresh 14-month high of 0.9928
• Before plunging towards the 50-day SMA
• Momentum indicators turn bearish

 EURCHF has been in a steady recovery since late December, attempting to erase its massive 2021-2023 downtrend. Last week, the pair surged to a fresh 14-month peak of 0.9928, but quickly retraced lower until the 50-day simple moving average (SMA) curbed its retreat.

If the recent weakness persists, the pair could violate the 50-day SMA and challenge the recent support of 0.9768. Further declines could then come to a halt at the May bottom of 0.9725. Even lower, the April support of 0.9675 might provide downside protection.

Alternatively, should the bulls regain control, immediate resistance could be found at 0.9836, which prevented the bulls from drifting further north on May 1. Higher, the April peak of 0.9847 could prove to be the next barricade for the price to overcome. A violation of that zone may pave the way for the 14-month high of 0.9928.

In brief, EURCHF experienced a strong pullback following its 14-month high of 0.9928, but the 50-day SMA appears to be holding its ground for now. Meanwhile, the pair could exhibit heightened volatility in the upcoming days as markets are bracing for the ECB’s rate decision on Thursday.

• Gold tries to enter Ichimoku cloud
• Prices stand in short-term sideways move
• Momentum oscillators lose steam

Gold prices are currently capped by the 20- and the 50-day simple moving averages (SMAs), remaining within the short-term consolidation area of 2,277 and 2,431.

In the near-term, the market could maintain a sideways move if the RSI keeps moving beneath 50 and the blue Kijun-sen line, hold flat. Regarding the trend, this is likely to remain on the downside as the MACD continues to lose strength below its trigger line and near the zero level.

If the commodity weakens, the 2,277 level could provide immediate support ahead of the 2,245 Fibonacci extension level of the down leg from 2,079 to 1,810. Even lower, the 2,222 barrier could attract greater attention as any leg lower could worsen the market’s bearish outlook, opening the way towards the 2,195 mark.

If there is an extension to the upside and above the short-term SMAs as well as the Ichimoku lines, resistance could run towards the 2,431 hurdle, which is the upper level of the trading range. Steeper increases could also reach the record high of 2,450.

Regarding the near-term picture, neutral sentiment deteriorated after the downfall from 2,431 and only a move above the all-time high could now help the market to return to a positive mode.

To summarize, gold looks neutral in the short-term, while in the long-term the picture is seen as bullish unless the price breaks below the 200-day SMA at 2.082.

UK PMI Manufacturing index was finalized at 51.2 in May, up from April's 49.1, marking the highest reading since July 2022. S&P Global noted that output increased across all main sub-sectors and size categories, and business optimism soared to a 27-month high.

Rob Dobson, Director at S&P Global Market Intelligence, described May's performance as a "solid revival" of activity in the UK manufacturing sector. Production and new business levels both rose at their fastest rates since early 2022. The recovery's breadth was notable, with concurrent output and new order growth across all main sub-industries—consumer, intermediate, and investment goods—and all company size categories for the first time in over two years.

However, the latest PMI survey data presented a mixed picture for price pressures. Output charge inflation at the factory gate strengthened for the fifth consecutive month, reaching its highest level in a year. Despite this, there was a solid easing in the rate of increase in input costs, which should help prevent price pressures from becoming entrenched.

Full UK PMI manufacturing final release here.

Eurozone PMI Manufacturing index was finalized at 47.3 in May, up from April's 45.7 and reaching a 14-month high. This improvement suggests a potential turning point for the manufacturing sector, which has been declining since April 2023.

Country-specific data reveals that Greece led with a PMI of 54.9, although this marked a 4-month low. Spain followed with 54.0, hitting a 26-month high, while the Netherlands posted a 21-month high of 52.5. France recorded a 3-month high at 46.4, and Austria saw a 15-month high at 46.3. Italy and Germany, however, showed lower figures with PMIs of 45.6 and 45.4, respectively, though both countries achieved multi-month highs.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, highlighted this as a potential "turning point" for the sector, noting that the industry is nearing the end of its production decline. He pointed out that business confidence regarding future production is at its highest level since early 2022.

Germany, despite having the lowest PMI among the four major Eurozone economies, is close to overtaking Italy, which has recently seen its performance deteriorate. France's industrial sector has improved but still lags behind, while Spain remains the only Euro-4 country with a growing industrial sector.

Full Eurozone PMI manufacturing final release here.

• EURUSD rebounds off 1.0800 and 200-day SMA
• Trades within narrow range
• MACD and RSI lack direction

EURUSD is currently moving sideways within a two-week consolidation area with upper boundary the 1.0895 resistance and lower boundary the 1.0800 round number.

Looking at the momentum indicators, the RSI is lacking direction slightly above the neutral threshold of 50, suggesting that the market could keep consolidating in the near term. The MACD also supports this view in the positive territory but is currently embraced by its red signal line.

Should the pair manage to strengthen its positive momentum, the next resistance could come around the 1.0900 psychological level. A break above it would shift the bias to a more bullish one and open the way towards the 1.0940 bar and the restrictive region of 1.0980-1.1000.

However, if prices are unable to break to the upside the trading range in the next few sessions, the risk would shift back to the downside with the 1.0800 support and the 200- and the 50-day simple moving averages (SMAs) at 1.0785 and 1.0770. A drop below the medium-term descending trend line would signal a resumption of the bearish move, meeting the 1.0720 mark.

All in all, EURUSD is looking neutral to bullish in the short-term timeframe as it is still developing above the medium-term downtrend line and the SMAs.

Markets

US Treasuries closed near Friday’s best levels on slightly softer April spending figures and a slower (but in line with forecasts) core PCE deflator pace. Daily changes on the US yield curve ranged between -6 bps (5-yr) and -3 bps (30-yr). This contrasted with yield increases of up to 2.5 bps (3-yr) in Germany on the back of accelerating May EMU CPI data (core: 2.9% Y/Y from 2.7% Y/Y). The combination pushed EUR/USD to the high 1.08 resistance area, but a real test didn’t occur. The pair closed the week where it started it, near 1.0840. US stock markets avoided losses thank to a late-session sprint higher which resulted in gains of up to 1.5% for the Dow Jones. For once, the tech-heavy Nasdaq underperformed (flat).

The May US manufacturing ISM kicks off a data-heavy US week today. Consensus expects a marginal improvement from 49.2 to 49.6. Apart from a one-off in March this year, the manufacturing ISM is in recessionary territory since November 2022. US Jolts Job openings are on tap tomorrow followed by ADP employment change and the services ISM on Wednesday. Payrolls finish it off on Friday. Don’t look for Fed speeches as the black-out period in the run-up to the June 12 policy meeting kicked in. From a market point of view, the flavour of the US data could switch the needle again between September and December for a first rate cut but this will likely keep US rates within recent trading ranges (eg US 10-yr yield 4.3%-4.73%). Focus on the EMU side turns to Thursday’s ECB meeting which will bring a first 25 bps rate cut to the deposit rate (3.75% from 4%). The bigger question remains whether the central bank commits to any guidance for the following meetings, something they refused to do so far. Sticky Q1 wage growth, the bumpy inflation path ahead, recovering economic growth, and the Fed’s reaction function all suggest limited scope to for follow-up cuts. We nevertheless think that the ECB will keep the option open. Given current market pricing (2nd rate cut only discounted in December), this leaves scope for a more dovish market reaction at the front end of the curve (in the euro’s disadvantage) in a steepening move. We see the longer end of the curve underperforming in such scenario on rising inflation expectations.

News & Views

Rating agency S&P cut the French credit rating from AA to AA- with a stable outlook as public finances are a huge concern. S&P expects the French debt-to-GDP ratio to increase to increase to 112% of GDP in 2027, from about 109% in 2023, which would be the third highest in the euro area, after Greece and Italy. Last year’s budget deficit came out at a higher than expected 5.5%. While the rating agency expects the deficit to shrink due to the economic recovery and recently implemented economic and budgetary measures, it will still average 4.6% over the 2024-2026 period before declining to 3.5% in 2027. In a broader perspective, S&P also assesses that France’s track record of fiscal consolidation has been weak over the past decades. It has not reported a primary budget surplus since 2001. The agency expects interest rate payments to increase to 5% of generaml government revenues in 2027 from 3% in 2023. Even so, the pass-through is mitigated due to the long maturity of France’s outstanding debt (> 8.5 years).

OPEC+ decided to extend the level of agreed production cuts for an amount of 3.66mn b/d until the end of 2025. Aside from these cuts in the general framework, eight members of the cartel, including Saudi Arabia and Russia also committed to 2.2mn of voluntary cuts. These cuts were due to expire at the end of June, but are prolonged untill the end of September 2024. Afterwards, they will be gradually reduced between October 2024 and September 2025. The meeting this weekend also addressed the issue on the capacity targets of individual members. The group intends to decide on capacity levels on the basis of an external review as a reference for 2026. Even as production cuts have been prolonged, the oil price (Brent crude) dropped to currently $81/b. That’s probably as markets doubt whether demand will be strong enough to digest the gradual reduction of the voluntary production cuts.

Graphs

GE 10y yield

ECB President Lagarde clearly hinted at a June rate cut which has broad backing. A more bumpy inflation path in H2 2024, the EMU economy gradually regaining traction and the Fed’s higher for longer US strategy make follow-up moves difficult. Markets are coming to terms with that. The German 10y yield is setting a new YtD top.

US 10y yield

The Fed in May acknowledged the lack of progress towards the 2% inflation objective, but Fed’s Powell indicated that further tightening was unlikely. Soft US early month data triggering a correction off YTD peak levels. However, the Fed minutes still showed internal debate whether policy is restrictive enough. Sticky inflation suggests any rate cut will be a tough balancing act. The US 10-y yield is rebounding in the 4.30/4.70% trading range.

EUR/USD

Economic divergence, a likely desynchronized rate cut cycle with the ECB exceptionally taking the lead and higher than expected US CPI data pushed EUR/USD to the 1.06 area. From there, better EMU data gave the euro some breathing space. The dollar lost further momentum on softer than expected early May US data. Some further consolidation in the 1.06/1.09 area might be on the cards short-term.

EUR/GBP

Debate at the Bank of England is focused at the timing of rate cuts. Slower than expected April disinflation and a surprise general election on July 4 suggest that a June cut in line with the ECB looks improbable. Sterling gained momentum with money markets now discounting a Fed-like scenario. EUR/GBP tested the 2023 & 2024 lows near 0.85. We expect this important support level to hold.