EUR/CAD corrects slightly around 1.562 as ECB pauses easing cycle and BoC warns of trade risks

Summary:

The euro edged up only slightly after Lagarde stressed that the easing cycle could pause after eight straight cuts, while the CAD did not strengthen significantly as the BoC said it would cut interest rates if the Canadian economy weakens under pressure from import tariffs...

SELL EURCAD

Close Time

CLOSED

1.56200

Entry Price

1.55800

1.56600

1.60234 +0.00034 +0.02%

40.0

Pips

Profit

1.55800

1.55797

Exit Price

1.56200

Entry Price

1.56600

Macro Overview

The ECB cut interest rates by 25 basis points to 2% on June 5, but signaled a possible pause in its easing cycle as eurozone inflation fell to 1.9%, close to its 2% target. Christine Lagarde stressed that given current inflation levels and the economic outlook, the ECB is “well placed” to pause and cut only once more by the end of the year if needed. PMI figures on June 4 showed Germany’s services PMI fell to 49.8, dragging the region’s composite index down to 50.2, its lowest since February 2025, suggesting slowing economic growth in the region.

In contrast, the Bank of Canada (BoC) on June 4, 2025 kept its base interest rate at 2.75% and made it clear that it would cut it if the economy weakened significantly due to uncertainty over US trade policy.. The BoC cited the US President's imposition of 50% steel and aluminum tariffs on Canada as the biggest "risk driver" for the Canadian economy. Canada's first-quarter GDP growth of just 2.2% in 2025, largely due to lower public spending and stable energy prices, shows the pressure to keep inflation steady around 3.1% and force the central bank to not raise interest rates again.

Against this backdrop, the monetary policy divergence between the ECB pausing easing and the BoC maintaining interest rates, coupled with less positive eurozone and Canadian data, has kept EUR/CAD in a short-term sideways trend, lacking a strong enough push to break out of the 1.558–1.568 channel..

Market psychology

EUR/CAD market sentiment on 06/06/2025 shows cautious state: hedge funds reduce long EUR/CAD positions after ECB signals end of easing game and BoC warns of trade risks. The “Fear Greed” index of European currencies remains neutral, indicating investors are reluctant to open large positions until more data on Eurozone inflation and Canadian employment figures are available. In addition, institutional money did not suddenly turn to CAD despite the BoC holding interest rates, due to tariff concerns and the unclear economic outlook of Canada.

Technical analysis

EUR/CAD corrects slightly around 1.562 as ECB pauses easing cycle and BoC warns of trade risks_1

Currently, EUR/CAD is trading around 1.5620, just below the MA20 (middle Bollinger Band) at 1.5632, with the upper Bollinger Band (20,0,2) around 1.5680 and the lower band around 1.5580. The price's failure to break above the MA20 and a slight decline suggests that sellers are still in control in the short term.

The Ichimoku Kinko Hyo indicator (9,26,52) on M15 shows that the price is below the Kumo cloud, the Tenkan-sen line (9) at 1.5630 has crossed below the Kijun-sen (26) at 1.5645, generating a short-term sell signal. The front Kumo cloud is sloping down, with Senkou Span A at 1.5635 and Senkou Span B around 1.5660, creating a resistance zone of 1.5635–1.5660.

The Stochastic Oscillator (5,3,3) indicator on the M15 chart is currently around 35, with %K trending down, not yet in the oversold zone (below 20), showing that selling pressure still has room to test the support at 1.5580. RSI M15 is estimated at around 42, below 50, confirming that the short-term downtrend is still dominant.

Trading Recommendations

Entry: 1,5620

Take Profit: 1,5580

Stop Loss: 1,5660

EUR/CAD could fall to 1.5580 in the short term if it stays below MA20 and Tenkan-sen, and if the price breaks the support at 1.5580, it could continue to fall to 1.5530. Conversely, if the price bounces and closes above 1.5635 (with increased volume), the SELL strategy is no longer reasonable and a stop loss should be placed at 1.5660, waiting for a technical pullback to 1.5680 before assessing the new trend.

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