European Central Bank (ECB) policymakers are likely to stall on either cutting benchmark borrowing costs or introducing the continent’s own Quantitative Easing (QE) drive at today’s (6 Mar) Governing Council meeting. This should give the euro a further bid against the Canadian dollar, to be played using EUR/CAD.

The euro has been on a tear for the past year, while the Canadian dollar has suffered disproportionately given the country’s reliance on its dominant commodities sector, whose health is in turn dependent on China where growth is waning (see Mr Market).This trend has further to run.

Markets have already begun to factor in further monetary loosening of one form or another from the ECB, however we are not so sure this will come to pass given that Friday’s (28 Feb) eurozone consumer prices index for February, at 0.8%, was better than expected, and an improvement on January’s disappointing 0.7%. Also, a further reduction in the base rate, currently at 0.25%, is unlikely given the last cut was only in November and it takes about six months for the economic benefits of reduced base rates to be felt.

While the market has been too quick to expect loosening from the ECB we do not expect it to be hasty when reacting to another possible positive number from the Ivey School of Business’ Canadian purchasing managers’ index, with the latest reading also to be published today. Last month’s reading came in at 56.8, versus a forecast of 54.3, but this does not mean Canada’s economic newsflow is about to dazzle.

Meanwhile any optimism about the state of the Canadian jobs market could be addressed in the event of poor unemployment numbers to be released tomorrow (7 Mar). January saw a surprise bounce in the labour market with 29,400 jobs created in the month, a marked turnaround from December when 44,000 positions were lost, according to Statistics Canada.

While a prediction of 16,900 new posts created in February is conservative there is still scope for the actual figure to be even poorer. Meanwhile forecasts for the unemployment rate to remain at January’s 7.0% might also transpire to be overly optimistic. Even the slightest disappointment here would give the EUR/CAD a further bid.

Key levels: The pair’s Relative Strength Index is currently at 64.11, suggesting there is room for more upside. Also adding confidence to a move higher is its 50-day Simple Moving Average, which on a daily timeframe is trading at C$1.4958. The next area of resistance for the EUR/CAD is at C$1.5971 (the 261.8% level).