Technical analysis & market outlook: EUR/CAD in May 2025. ECB and BOC rate forecasts, technical analysis and market sentiment
In the evolving global economic landscape, characterized by tariff uncertainties and declining inflation, central banks worldwide navigate unique challenges. This analysis focuses on the monetary policy and the divergence between the European Central Bank (ECB) and the Bank of Canada (BOC).
Following a period of weakness and the May 7th, 2025, FOMC meeting decision to maintain current rates, the US dollar has strengthened against various currencies. However, the gains have varied. From May 1st to May 12th, 2025, the US dollar appreciated by 1.58% against the Canadian dollar (CAD), 2.59% against the euro (EUR), and 3.96% against the Japanese yen (JPY).
EUR/CAD Price action - BOC and ECB interest rates overlay - As of May 13th 2025 - 11:01 AM EST Source: Tradingview.com. Past performance is not indicative of future results.
At its April 2025 meeting, the Bank of Canada held interest rates at 2.75%, marking the first pause in its rate cut cycle, which was initiated in June 2024. Bloomberg's analyst surveys indicate a split for the upcoming BOC rate decision on June 4th, 2025. Sixty-four percent expect a 25 bps cut, while the remainder anticipates holding rates. This uncertainty stems from the unclear impact of tariffs on growth, employment, and inflation.
Conversely, the European Central Bank has consistently cut rates by 25 bps at each meeting since June 2024. Bloomberg’s surveys suggest that 92.5% expect another cut of 25 bps on June 5th, 2025, when the ECB will announce its rate decision. Eurozone inflation remains subdued, with the March 2025 Harmonized Index of Consumer Prices (HICP) reading at 2.20%, nearing the ECB’s 2% target, with the potential for undershooting.
The latest Commitment of Traders Report (COT Report), released on May 9th, 2025, with data up to May 6th, 2025, reveals positioning levels for the euro and Canadian dollar by dealers/intermediaries and asset managers/institutions. Both are at intermediate extremes, but the euro is closer to its all-time extremes, making it more susceptible to sentiment changes than the Canadian dollar.
Analyzing the EUR/CAD exchange rate reveals critical technical levels amidst monetary policy divergence.
Monthly chart analysis
EUR/CAD Monthly chart - As of May 13th 2025 - 11:07 AM EST Source: Tradingview.com. Past performance is not indicative of future results.
- Price action is challenging multi-year resistance dating back to 2010, near the annual R2 at 1.5626. April 2025 saw an attempted breakout, but the monthly candle closed below R2 with a bearish shooting star formation and high tick volume.
- An uptrend has existed since early 2023, with a confluence of support between 1.5258 and 1.4860, including the trendline, annual PP at 1.4860, annual R1 of 1.5258, EMA9, and SMA9.
- The RSI is currently in overbought territory.
Weekly chart analysis
EUR/CAD Weekly chart - As of May 13th 2025 - 11:10 AM EST Source: Tradingview.com. Past performance is not indicative of future results.
- The weekly chart shows price action ahead of the Bank of Canada (BOC) meetings on June 4th, 2025, and the European Central Bank (ECB) on June 5th, 2025, potentially reflecting differing interest rate cut forecasts.
- A double top formation is emerging with negative divergence on the stochastic indicator following a February 2025 breakout.
Daily timeframe analysis
EUR/CAD Daily chart - As of May 13th 2025 - 11:13 AM EST Source: Tradingview.com. Past performance is not indicative of future results.
- The daily chart details the double top formation, with price breaking below the baseline in early May. Pullbacks found resistance at the broken baseline and the weekly pivot point of 1.5666.
- On May 12, 2025, the daily candle showed a downward gap, which could be a breakaway gap or a reaction to the double top.
- The RSI is near oversold levels at 40, with negative divergence to price action.
Conclusion
Considering the contrasting interest rate outlook and inflation dynamics, the potential EUR/CAD forecast for 2025 indicates heightened volatility. Traders should closely monitor the ECB and BOC announcements, market sentiment, and the ongoing monetary policy divergence.
This article is for general information purposes only, not to be considered a recommendation or financial advice. Past performance is not indicative of future results. It is not investment advice or a solution to buy or sell instruments. Opinions are the authors; not necessarily those of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and is not suitable for everyone. We advise you to carefully consider whether trading is appropriate for you in light of your personal circumstances. You may lose more than you invest. We recommend that you seek independent financial advice and ensure you fully understand the risks involved before trading. Trading through an online platform carries additional risks. Losses can exceed deposits.
