EUR/CAD has strengthened and is trading close to 1.6150. This rise is due to increased risk appetite and reduced tensions between the US and Venezuela. However, the Canadian Dollar may come under pressure if access to Venezuela’s large crude reserves affects Canadian oil demand. Analysts worry that a drop in oil prices could hurt Canada’s external earnings. Currently, West Texas Intermediate Oil prices are around $57.70. This decline could influence global oil supply dynamics, even though Venezuela has a small share of global output.

Upcoming Economic Data

We are keeping an eye on Germany’s preliminary Consumer Price Index (CPI) and Harmonized Index of Consumer Prices (HICP) for December. The European Central Bank is expected to maintain interest rates due to ongoing uncertainty about future policy. Germany’s statistics office releases the HICP monthly, allowing for inflation comparisons across EU member states. The forecast for December is 2.2%, down from the previous reading of 2.6%. A higher figure is usually good for the Euro. The next data release is on January 6, 2026. With the current situation, we expect the EUR/CAD to stay steady around 1.6140. This stability comes from a strong Euro, as the European Central Bank has indicated it will keep interest rates steady for a while following its December 2025 decision. On the other hand, the Canadian Dollar faces challenges as oil prices decline.

Pressure on the Canadian Dollar

The Canadian Dollar is under pressure primarily because of oil, which is vital to Canada’s economy. After a volatile 2025, where oil prices softened in the latter half of the year, West Texas Intermediate is currently trading at approximately $57.70. The outlook for 2026 looks weak. Renewed US access to Venezuelan crude, although its effect on supply may be minor, creates a negative sentiment and reduces demand for Canadian oil, the largest buyer being the US. Later today, we will be watching Germany’s preliminary inflation data for December. The market anticipates that the HICP will fall to 2.2% year-over-year from 2.6% previously. A reading at or above this forecast could reinforce the ECB’s steady approach, thus supporting the Euro against the struggling Canadian Dollar. For derivative traders, this outlook suggests that continuing to bet on EUR/CAD strength in the coming weeks may be wise. Buying call options on EUR/CAD would enable traders to take advantage of potential price increases while limiting their maximum risk. This tactic is especially beneficial given the event risk from today’s inflation data, which could lead to short-term volatility. The recent comments from the ECB President about “heightened uncertainty” also indicate potential price swings. This suggests that implied volatility in the EUR/CAD pair may be undervalued. Traders might consider strategies that profit from larger-than-expected movements, regardless of direction, especially during key data releases in January. Create your live VT Markets account and start trading now.

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