Bullish Resumption Looms as RSI Divergence Forms at Key Local Support

Central Bank

Economic

Summary:

This move pushes it to recent lows, even dropping below RSI levels seen during past sessions with lower prices, which indicates that bears are rapidly losing strength and bulls could retake control from this zone.

BUY EURCAD

EXP

PENDING

1.61600

Entry Price

1.62670

1.61100

1.61835 +0.00054 +0.03%

Pips

PENDING

1.61100

Exit Price

1.61600

Entry Price

1.62670

Geopolitical tensions in the Middle East continued to escalate after the Islamic Revolutionary Guard Corps (IRGC) announced on Wednesday strikes against U.S. military facilities in Bahrain and Kuwait. This action came as retaliation for a series of bombings launched by the United States against Iranian targets, following recent attacks on oil tankers transiting the Strait of Hormuz.

The escalation of the conflict has kept the attention of energy markets focused, given the region's strategic role in the global supply of crude oil. In this context, Canada could benefit indirectly from rising oil prices, as it is one of the world's leading energy exporters, and a surge in crude oil typically favors the Canadian dollar (CAD).

However, several factors continue to cap the Canadian currency's appreciation potential in the short term. Notable among these are the moderation of inflationary pressures in Canada, recent weakness observed in both gold and oil, and persistent uncertainty surrounding the future of the Canada-United States-Mexico Agreement (CUSMA). Even so, a growth-oriented economic agenda and greater clarity in trade relations could lay the groundwork for a more sustained strengthening of the CAD heading toward 2027.

Regarding monetary policy, market consensus continues to indicate that the Bank of Canada (BoC) will keep interest rates unchanged for the remainder of the year. Nonetheless, the institution leaves the door open for future cuts if inflation continues to show signs of deceleration.

On the other hand, in the Eurozone, preliminary inflation data reflected a larger-than-expected moderation. The Harmonized Index of Consumer Prices (HICP) slowed to 2.8% year-on-year in June, down from the 3.2% recorded in May and below the market forecast of 3.0%. In monthly terms, prices pulled back by 0.1%, reversing the 0.1% advance observed the previous month.

Despite this improvement in inflationary indicators, some European Central Bank policymakers maintain caution due to risks stemming from the geopolitical situation. The Governor of the Bank of Italy and ECB Governing Council member, Fabio Panetta, noted on Tuesday that upside threats to inflation remain present, especially due to the uncertainty surrounding the Strait of Hormuz, a key route through which nearly 20% of the world's energy supply transits.

Nevertheless, there are also voices within the ECB who believe that inflationary pressures could continue to moderate. The Governor of the National Bank of Belgium, Pierre Wunsch, stated last week that any inflation surprise before the July meeting would likely be to the downside.

In a similar vein, ECB Governing Council member José Luis Escrivá indicated on Wednesday that the institution must keep all monetary policy options open, though he noted that central banks typically avoid reacting immediately to temporary shifts in energy prices.

For his part, Joachim Nagel, President of the Bundesbank and ECB Governing Council member, acknowledged that recent events related to Iran have once again increased economic uncertainty. In this context, he reiterated that a meeting-by-meeting decision-making approach remains the most appropriate strategy for the European monetary authority. Bullish Resumption Looms as RSI Divergence Forms at Key Local Support_1

Bullish Resumption Looms as RSI Divergence Forms at Key Local Support_1

Technical Analysis

EURCAD has made a corrective move downward that has found support in the 1.6150 zone. This area also aligns with the 200-period moving average located at 1.6158, while the 100-period moving average sits slightly above at 1.6204. If the price fails to break below this support zone, we could see a new bullish impulse toward the 1.6267 level, which marks a local resistance area and the recent local peak.

Looking at the oscillators, the RSI corrected aggressively, reaching the 31 level. This move pushes it to recent lows, even dropping below RSI levels seen during past sessions with lower prices, which indicates that bears are rapidly losing strength and bulls could retake control from this zone. Meanwhile, the MACD shows a bearish histogram that is quickly losing depth. Although the signal lines recently crossed below the neutral line, they could return to the bullish zone and recover upward momentum. However, if the price breaks lower decisively, this bullish setup would be invalidated.

Trading Recommendations

Trading direction: Buy

Entry price: 1.6160

Target price: 1.6267

Stop loss: 1.6110

Validity: Jul 17, 2026 15:00:00

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Bullish Resumption Looms as RSI Divergence Forms at Key Local Support

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