Morning Note: ECB Rate Cut Expected; Canada PMI in Focus; EUR/USD, USD/CAD

ECB is set to cut rates again (12:15 GMT). But how low can they go?

The European Central Bank is widely anticipated to deliver another 25-basis point rate cut in June as it balances slowing inflation against persistent global trade risks. Market attention will focus on potential adjustments to the ECB's forward guidance, with policymakers likely to pause in July to evaluate the effects of new U.S. tariffs on Eurozone growth and inflation, alongside fresh economic projections. This cautious approach comes as May's inflation reading surprised to the downside at 1.9% (versus 2.0% expected), dipping below the ECB's target for the first time in eight months, while labour markets remain tight despite recent PMI data pointing to ongoing economic weakness.

But most of the market action could come not from the rate announcement itself, but during the press conference (12:45 GMT), when Christine Lagarde will take the stand and then answer questions. Everyone will be on the lookout for any further guidance on future rate decisions.

EURUSD technical outlook

After reversing higher around mid-January, EURUSD is seen forming higher lows. However, after a strong correction lower at the end of April, the pair is now trying to make its way back to the current highest point of this year, while trading within a short-term upside channel, drawn roughly from mid-May.

As long as the rate stays within that rising channel, we will continue aiming higher, targeting the current highest point of 2025, at 1.1573. If the buying power is still strong, we may clear the high and establish a new one for this year. That’s when we will aim for the next potential resistance territory, at around the 1.1700 zone, marked near the high of October 28th, 2021.

On the other hand, a break through the lower side of the aforementioned rising channel could open the way towards the 1.1264 hurdle for a quick test. Around there, the rate might get an additional hold-up by the 50-day EMA; however, if it fails to eventually provide strong support and breaks, we could see EURUSD sliding in the direction of the 1.1065 area, marked by the lowest point of May.

Canada’s Ivey PMI (14:00 GMT) will be watched by CAD traders

Canadian dollar traders will most likely keep a sharp eye on Canada’s Ivey PMI numbers for May, both seasonally adjusted and non-seasonally adjusted. But probably, the focus will fall more on the seasonally adjusted figure, which has recently fallen significantly to 47.9. The last time the number fell below 50 was during the release of the January reading. The recent slide could be a factor in Canadian unemployment numbers slowly creeping up higher, and Canadian inventories showed a slight increase in the latest report. The current expectation for the May figure is to see a slight push higher, which could be seen as a positive for the CAD. However, investors understand that this would still keep the indicator in contraction territory, which is below 50.

USDCAD technical outlook

The CAD has been strengthening against the USD for some time now, but it is now approaching a key long-term support line, which is drawn from the lowest point of December 2023. At the same time, the pair remains below a medium-term downside resistance line taken from the current highest point of this year.

If the previously discussed upside line provides strong support, we could see a slight correction back up. This could lead USDCAD towards the 1.3860 zone and the aforementioned downside line, where both could provide a strong initial hold-up.

Alternatively, a break of the upside line may signal further advances to the downside. The pair might then travel to the area between the 1.3419 and 1.3440 levels, which mark the lowest points in September and August of 2024, respectively.

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