Euro Weakness Continues

Today’s currency update shows that the Canadian Dollar (CAD) is gaining strength, particularly against the Japanese Yen. The CAD is also rising against the Euro, British Pound, and other major currencies. The table below compares the percentage changes among various currencies, highlighting the CAD’s strength. Looking ahead, we expect the EUR/CAD to trend lower in the coming weeks due to differing economic conditions. The Bank of Canada (BoC) is facing persistent inflation, making another rate cut at their next meeting unlikely. This situation stands in stark contrast to the weakening economy in Europe. Support for the Canadian economy comes from several factors, in addition to recent inflation data exceeding expectations. Statistics Canada reported a surprising gain of 41,000 jobs in September, keeping the unemployment rate steady at 5.5%. This strong job market, combined with WTI crude oil prices staying above $85 per barrel—after a recent EIA report showed a draw of 2.1 million barrels—gives the Canadian Dollar a solid base.

Euro Faces Challenges

In contrast, the Euro is having trouble building momentum. Weak German producer price data signals ongoing disinflation, further highlighted by the German IFO Business Climate index dropping to 85.2—its lowest in 12 months. This persistent weakness in Germany, the Eurozone’s economic powerhouse, along with political instability in France, limits the Euro’s chances of a rally. For our trading strategies, this outlook suggests we should focus on opportunities that benefit from a decline in the EUR/CAD. We plan to buy put options with November and December expirations, aiming for a target around the 1.6150 level. This strategy allows us to take advantage of the expected downturn while clearly defining our maximum risk in case the market changes direction. It’s important to remember how quickly market sentiment can shift, as we saw in 2023 when central banks reacted unexpectedly to a few pieces of data. A sudden drop in Canadian inflation or an unexpected statement from the European Central Bank could quickly alter our trading positions. Therefore, maintaining strict risk management is essential. Key upcoming events to watch are the Bank of Canada’s interest rate decision and monetary policy report on October 29. We will also monitor the preliminary Eurozone inflation figures for October, which will be released the following week. These events will be crucial in either validating our bearish outlook or prompting a reassessment of our strategy. Create your live VT Markets account and start trading now.

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