• EUR/CAD drifts lower for the third successive day and drops to a nearly three-month low.
• The BoC’s surprise rate hike, an uptick in Oil prices underpin the Loonie and exert pressure.
• Bets for further policy tightening by the ECB could limit losses amid a slightly oversold RSI.

The EUR/CAD cross prolongs its recent downtrend witnessed over the past week or so and remains under some selling pressure for the third straight day on Thursday - also marking the sixth day of a negative move in the previous seven. The cross maintains its offered tone through the early European session and drops to the 1.4285-1.4280 region, its lowest level since February 13 in the last hour.

Against the backdrop of the Bank of Canada's (BoC) surprise 25 bps rate hike on Wednesday, a modest uptick in Crude Oil prices is seen underpinning the commodity-linked Loonie and exerting some pressure on the EUR/CAD cross. It is worth recalling that the Canadian central bank defied market expectations by restarting its policy tightening and hiking its overnight rate to 4.75%, or a 22-year high.

In the accompanying policy statement, the BoC noted that concerns have increased that CPI could get stuck materially above the 2% target. The markets were quick to price in yet another increase next month to ratchet down an overheating economy and stubbornly high inflation. The hawkish outlook contributes to the Canadian Dollar's (CAD) relative outperformance and weighs on the EUR/CAD cross.

The shared currency (Euro), on the other hand, draws some support from a modest US Dollar (USD) downtick and rising bets for further policy tightening by the European Central Bank (ECB). In fact, ECB President Christine Lagarde indicated earlier this week that additional interest rate rises were likely as, so far, there was no clear evidence that underlying inflation has peaked.

This comes on the back of the recent hawkish comments by several ECB officials and reaffirms expectations that the central bank is not done raising rates despite a fall in consumer inflation. It is worth recalling that the headline Eurozone CPI decelerated more than anticipated to the 6.1% YoY rate in May from 7.0% previous. Moreover, Core CPI slowed from 5.6% YoY to 5.3% last month.

The aforementioned mixed fundamental backdrop, along with the fact that the Relative Strength Index (RSI) on the daily chart is on the verge of breaking into the oversold territory, warrant some caution for bearish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest bounce before positioning for a further depreciating move for the EUR/CAD cross