The Bank of Canada (BoC) is widely expected to deliver another 50bps rate cut in December, with market anticipation running high for this move.
Our Event Guide for the BoC’s December Decision highlights the central bank’s apparent commitment to an aggressive rate cut, even amid improving inflation and labor market conditions in Canada.
While this expected cut may already be priced into the Canadian dollar’s current levels, dovish signals during the BoC’s press conference could trigger further weakness for the Loonie—credit to Hubtrading for the insight!
Here are the setups to watch for EUR/CAD and CAD/CHF if the Canadian dollar faces additional losses post-BoC announcement.
Net Risk-On Environment Scenario: EUR/CAD
EUR/CAD 1-Hour Chart by TradingView
Recent price action suggests that European markets are largely shrugging off political concerns in France and Germany, as well as signs of economic weakness in Germany. Instead, they appear to be anticipating a December ECB rate cut, followed by a cautious outlook.
Meanwhile, the Canadian dollar has been under pressure from the Bank of Canada’s increasingly dovish stance. This has propelled EUR/CAD higher, lifting it from November lows near 1.4500 to its current position around 1.4950.
A dovish rate cut from the BoC could further support EUR/CAD’s uptrend, with the pair currently consolidating just below the key 1.5000 psychological level.
In a risk-friendly environment, bullish candlesticks could signal a breakout above 1.5000, particularly if BoC officials hint at further easing despite significant rate cuts. Should momentum continue, the pair could target the R1 Pivot Point at 1.5038, especially if the ECB policy announcement strengthens the bullish outlook.
Net Risk-Off Environment Scenario: CAD/CHF
CAD/CHF 1-Hour Chart by TradingView
If risk sentiment deteriorates in the coming sessions, the Swiss franc could present attractive trade opportunities.
As a go-to safe-haven currency, the franc may gain additional traction if the U.S. dollar weakens ahead of this week’s CPI and PPI reports or next week’s FOMC decision. While the Swiss National Bank (SNB) is expected to cut rates this week, it’s likely to adopt a less aggressive stance compared to the BoC, which could hint at further easing measures for Canada.
A dovish BoC could accelerate CAD/CHF’s downward momentum, with the pair currently testing a critical support zone on the 1-hour chart. Sustained trading below the .62000 psychological level could attract more sellers, paving the way for potential declines toward .6150 or even .6100.
Regardless of the trade setup you choose, ensure robust risk management strategies are in place and stay attuned to key market catalysts that could shift sentiment.
