EUR/CAD Eases Below 1.3200s Level, Backdrop Still Favors The Euro Bull

• EUR/CAD pair attracts fresh Selling on Thursday to drag spot prices below the 1.3200s level
• Euro stills draw support from aggressive ECB rate hikes bets in its next Monetary policy meeting next week despite fresh selling
• Odds of the European Central Bank hiking rates by 75 basis points on Sept. 8 have now jumped to 67%
• Positive Canada Macro data offers some support to the loonie though overshadowed mainly to a larger extent by aggressive ECB rate hike bets

EUR/CAD pair seesawed between tepid minor gains and minor losses during the early part of the Asian session. The cross struggled to capitalize on extending Wednesday's modest pullback from the vicinity of 1.30742 level and ran out of steam after attracting fresh selling in the last hour or so on Thursday. Price looks to maintain its bid tone heading into the European session.

On the European economic data front, Isabel Schnabel, a member of the ECB's executive board, said that ECB "policymakers should also not pause at the first sign of a potential turn in inflationary pressures... but rather, they need to signal their strong determination to bring inflation back to target quickly." "Central banks risk losing public trust and must act forcefully to curb inflation, even if that drags their economies into a recession", she added. Her remarks surprised markets as they followed up  Federal Reserve chairman Jerome Powell's hawkish comments last Friday during the Jackson Hole Symposium. Following Schnabel's remarks, The odds of the European Central Bank hiking rates by 75 basis points on Sept. 8 have now jumped to 67%, according to the latest data from Refinitiv.

However, some remain unconvinced and question whether the front-loading of rate hikes will be enough to convince investors that the ECB will do what is necessary to fight inflation as the central bank is well behind the curve. 

The jury is still out on whether a 75-basis-point rate hike in September "would be sufficient to convince the market in view of the fact that the ECB is likely to be seen as being well behind the curve," Commerzbank said in a note.

Euro area annual inflation rose to 9.1% in August 2022, up from 8.9% in July, the highest on record, according to a flash estimate from Eurostat, the statistical office of the European Union. According to Eurostat, energy prices among the 19 member states rose at the highest annual rate in August (38.3%, compared with 39.6% in July), followed by food, alcohol & tobacco (10.6%, compared with 9.8% in July), non-energy industrial goods (5.0%, compared with 4.5% in July) and services (3.8%, compared with 3.7% in July). The data was slightly stronger than expected, adding pressure on more dovish ECB policymakers in favor of a 50 basis point move next week.

French ECB policymaker Francois Villeroy de Galhau said on Wednesday the spike in inflation, initially driven by rocketing energy prices, was spreading to the broader economy and feeding into services. However, there are no signs of a wage-price spiral at present. Despite the current energy price shock, Villeroy said that a recession in Europe was unlikely for 2022 but that nothing could be excluded for next year.

The latest German Unemployment data showed the number of people employed Last month rose by 25,000 or 0.1% month on month, but still 0.2% below the record high in November 2019. Roughly 45.4 million person residents in Germany were in employment in July 2022, according to provisional calculations of the Federal Statistical Office (Destatis). That said, the combination of factors has added more pressure on the ECB to act aggressively in its bid to bring inflation data and in turn, this was seen as a key factor that underpinned the euro.

On the Canadian Economic data, Canada's Real gross domestic product (GDP) rose 0.8% in the second quarter, driven by increased business investment in inventories, non-residential structures, machinery and equipment, and household spending on services and semi-durable goods. This was the fourth consecutive quarterly increase in real GDP. The positive macro data was overshadowed to a larger extent by the aggressive interest rate hikes bet by the ECB in its next monetary policy meeting report scheduled for release next week.

As we advance, investors will look for directional impetus from the German Manufacturing PMI report release for August, in which the german sector is expected to have contracted. The report would provide guidance on industrial growth, supply chains, and price pressures in Germany and influence the near-term Euro price dynamics.

Technical Outlook: Four-Hour EUR/CAD Price Chart

From a technical Standstill, using a four-hour price chart, the price seems to have rebounded from the upper trendline of the multi-ascending channel pattern plotted from mid august 2022 lows after failing to extend Wednesday's modest pullback from the vicinity of the 1.30742 level. Some follow-through selling has the potential to drag the EUR/CAD pair towards testing the lower trendline of the multi-ascending channel pattern. But before then, we will need a sustained strength below the 200 EMA level at 1.31115. The aforementioned support level would act as a barricade against the pair; however, a convincing break below it would negate any near-term bullish outlook and pave the way for aggressive technical selling. The downward trajectory could then accelerate toward the demand zone ranging from 1.29659- 1.30077 level.

The RSI(14) level at 71.3568 is flashing extreme overbought conditions. The 20 and 50 Exponential moving average (EMA) crossover at the 1.30083 level paints a bullish filter. Additionally, the Moving Average Convergence Divergence (MACD) crossover at the -0.0046 level adds to the upside bias.

On the Flipside, a pullback toward retesting the upper trendline of the multi-ascending channel pattern followed by a subsequent break above it would negate any near-term bearish bias and pave the way for technical buying.