EUR/CAD Bullish above 1.4020 ahead of BoC rate decision!

The Canadian dollar is trading slightly lower against the euro as traders anxiously awaited today’s Bank of Canada policy meeting. The market expects the BoC to maintain its policy rate unchanged at 0.75%. Earlier, the loonie rose to a month-high vs euro, boosted by better-than-expected GDP data, which came at 2.4% qoq, a bit slower than the pace seen in the previous quarter but better than what analysts were expecting of 2.0%.

From the end of 2010, the interest rates were risen and kept at the level of 1.0%. In their last meeting, the BoC decreased its interest rates to a historical low of 0.75% in response to falling oil prices. This rate cut, was a measure to avoid the risk of deflation. Inflation fell to 1.0% in January from 1.5% in the previous month and 2.0% in December. The continuous fall of oil price, keep the traders alarmed as it directly affects the value of the Canadian dollar.

Technically, the EUR/CAD pair found strong support yesterday just below the psychological level of 1.3900, where the descending trend line which started back in May 2014, propped it up. This was also a previous resistance so there was clearly plenty of support around this key level. On the upside, the pair is expected to face a hurdle near 1.4100, which includes the 50-period SMA as well as the 200-period SMA on the 4-hour chart.

Going forward, the 1.3980 is providing sufficient resistance to the pair but I do not expect this to hold much longer. The key level here will be the 1.4060 for me. If this level is broken in the next few hours, it would suggest that the market has turned more bullish, opening up a move towards the 1.4200 barrier. A break above here, then it would open the way towards the 1.4330 region. All in all, the bias will remain bullish as far as the 1.3885 – 1.3900 zone is intact.

Alternatively, if we see a break lower, which I do not foresee at the moment, the pair should find support around the key support level of 1.3800 and 1.3750.