EUR/CAD Gains as ECB Rate Hike Bets Strengthen

Traders' Opinions

Summary:

EUR/CAD rose for a second straight session on Monday, supported by growing expectations that the European Central Bank will continue tightening policy while the Bank of Canada remains sidelined amid weakening domestic economic conditions.

BUY EURCAD

EXP

PENDING

1.61300

Entry Price

1.62500

1.60300

1.60957 +0.00109 +0.07%

Pips

PENDING

1.60300

Exit Price

1.61300

Entry Price

1.62500

EUR/CAD extended its gains for a second consecutive session on Monday, trading near 1.6110 during European hours as investors increasingly favored the euro over the Canadian dollar amid diverging monetary policy expectations.

The euro found support after German retail sales fell 0.3% in April, a smaller decline than the 0.4% drop forecast by economists, easing concerns over consumer weakness in Europe’s largest economy. More importantly, recent inflation readings across the Eurozone continue to highlight persistent price pressures, with France, Italy, and Spain reporting stronger inflation trends despite a moderation in Germany.

The data reinforced expectations that the European Central Bank will deliver a 25-basis-point rate increase at its June 11 meeting. ECB meeting accounts also revealed that some policymakers had already advocated for tighter policy in April, underscoring concerns that inflation remains well above the central bank’s 2% target.

Meanwhile, the Canadian dollar remained under pressure after data showed Canada’s economy contracted in the first quarter of 2026, marking a second consecutive quarter of annual decline and signaling a clear loss of economic momentum. At the same time, the Bank of Canada’s preferred core inflation measures fell to their lowest levels in five years, strengthening the view that underlying price pressures are easing.

The combination of slowing growth and cooling inflation has effectively eliminated expectations for additional Bank of Canada rate hikes, with markets now widely anticipating policymakers will leave rates unchanged at their June 10 meeting.

In my view, EUR/CAD continues to be driven by a widening policy divergence between the ECB and the BoC. As long as Eurozone inflation remains elevated and Canadian economic data continues to soften, the balance of risks appears tilted toward further upside for the pair.

Technical Analysis

From a technical perspective, EUR/CAD remains constructive on the 4-hour timeframe, with price action continuing to carve out a sequence of higher lows following the rebound from the May low near 1.5900. The pair is currently trading around 1.6100 and is testing a key resistance zone between 1.6115 and 1.6125, an area that has repeatedly capped upside attempts over the past several weeks. Despite multiple rejections from this region, buyers have consistently defended higher support levels, suggesting that bullish pressure continues to build beneath resistance.

The broader market structure remains favorable for further gains as long as EUR/CAD holds above the 1.6035–1.6045 support zone. This area has acted as a significant demand region and served as a launchpad for the latest advance. A sustained break below this support would weaken the near-term bullish outlook and expose the next downside target around 1.5900–1.5910, where a major swing low and longer-term support zone are located. A move beneath that level would represent a significant deterioration in market structure and could trigger a deeper correction toward the 1.5850 region.

On the upside, traders remain focused on a decisive breakout above the 1.6120 resistance barrier. The chart shows repeated tests of this ceiling, increasing the probability of an eventual breakout. A confirmed move above 1.6125 would likely attract fresh momentum buying and open the door toward the next major resistance zone near 1.6240–1.6250, which represents the highest visible supply area on the chart and aligns with previous swing highs. Such a move would reinforce the developing bullish trend and signal an extension of the broader recovery from May's lows.

The recent consolidation below resistance appears more consistent with accumulation than distribution. Price continues to hold above key support while volatility compresses beneath a well-defined ceiling, a pattern often associated with bullish continuation setups. The series of higher lows established throughout the latter half of May further supports this interpretation.

While momentum indicators are not displayed on the chart, price action itself suggests underlying bullish momentum remains intact. The inability of sellers to force a meaningful retracement despite multiple resistance rejections indicates that demand remains firm. A breakout above 1.6125 would likely accelerate upside momentum, while failure to hold above 1.6040 would be the first signal that bullish control is fading.

TRADE RECOMMENDATION

BUY EUR/CAD

ENTRY PRICE: 1.6130

STOP LOSS: 1.6030

TAKE PROFIT: 1.6250

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