In this article, we provide a comprehensive EURCAD forecast, meticulously examining both the fundamental and technical factors that influence the dynamics of this currency pair.
Higher Interest Rates Pose Challenges for Canadian Borrowers and Real Estate
Reuters – The Office of the Superintendent of Financial Institutions (OSFI), Canada’s primary banking regulator, has raised concerns about the increasing risk posed by elevated borrowing costs to the country’s financial system. This risk is particularly evident in the real estate sector, including housing and commercial properties. OSFI’s latest report highlights the pressure that higher interest rates are placing on retail, corporate, and commercial borrowers, affecting their ability to service their debt.
The report also identifies signs of deteriorating credit quality, especially within the commercial real estate sector. As higher interest rates continue to have an impact, consumers and businesses will face challenges in adapting to the current rate environment, especially as loans mature in the coming years.
For consumers, higher borrowing costs have created challenges in the mortgage market. The report notes that home prices in Canada had been steadily rising for years, experiencing significant surges during the COVID-19 pandemic when interest rates were at historically low levels. While the housing market experienced a downturn, the national benchmark home price had still doubled over the past decade, reaching $757,600 USD as of August. Additionally, there is uncertainty surrounding the long-term value of commercial properties, given the persistence of remote and hybrid work arrangements.
The report specifically highlights the risks associated with different segments of commercial real estate (CRE), with office, construction, and development sectors identified as particularly vulnerable. However, it notes that all commercial property types are facing increased risks due to higher interest rates. The credit quality of variable-rate and fixed payment mortgages has shown signs of deterioration.
Many Canadian borrowers hold variable-rate loans, which are tied to the Bank of Canada’s policy rate, and the cost of fixed-rate mortgages has also risen alongside government bond yields. OSFI is particularly concerned about the approximately $250 billion in mortgages with reported amortization periods of 35 years or longer. Some of these mortgages are “negatively amortizing,” meaning the borrower’s balance is actually increasing. As these mortgages come up for renewal, some borrowers may face significantly higher payments. OSFI is engaging with senior leaders at commercial banks to address and mitigate this issue.
EURCAD Analysis: Technical Analysis
FxNews – On the daily chart, the pair is trading within a bearish channel, struggling to gain momentum around the 1.442 pivot point.
Our technical indicators on the daily chart are pointing towards an increase in selling pressure. The Stochastic oscillator (a momentum indicator that compares a particular closing price of a security to a range of its prices over a certain period of time) has turned down from the overbought area. This suggests that the market may be overvalued and could be primed for a price pullback.
In addition, the Relative Strength Index (RSI), another momentum oscillator that measures the speed and change of price movements, is hovering just below the midline. This indicates that sellers are gaining ground against buyers.
When we zoom into the 4-hour chart for a more granular view of the EURCAD pair, we see it attempting to breach the bullish channel and close below it. The RSI indicator on this timeframe is flipping below the 50 line, which often signals a potential bearish reversal.
If the EURCAD bears can muster enough strength to close below 1.435 on the 4-hour chart, it’s likely that we’ll see a continuation of this bearish bias. The next target for the bears would be 1.424, serving as a second checkpoint or support level.
As always, it’s crucial for traders to monitor these levels and indicators closely, as they can provide valuable insights into potential future price movements. Stay tuned for more updates and in-depth EURCAD Analysis.
J.J Edwards is a finance expert with 15+ years in forex, hedge funds, trading systems, and market analysis.