The EUR/CAD pair is down slightly after recent losses, trading around 1.6160. The Canadian Dollar (CAD) may weaken due to falling oil prices, despite Canada being the largest exporter of crude oil to the US. The price of West Texas Intermediate (WTI) oil has dropped to about $60.40 per barrel. This decline comes as supply concerns overshadow previous gains. According to the International Energy Agency (IEA), global oil supply is expected to exceed demand, even with an upgrade in anticipated demand growth.

Key Economic Events

All eyes will be on Canada’s Retail Sales data for November, which is projected to rise by 1.2% after a 0.2% decline in October. Retail Sales excluding Autos might also increase by 1.4%, compared to a previous 0.6% drop. The Euro could gain strength as tensions over US-EU tariffs ease, with President Trump choosing not to impose tariffs on certain European goods. This could influence the EUR/CAD exchange rate as market conditions change. The Canadian Dollar is influenced by several factors: interest rates set by the Bank of Canada, oil prices, the state of the economy, inflation, and trade balance. Economic conditions in the US also impact the CAD. Decisions by the Bank of Canada on interest rates and oil prices directly affect the CAD’s value, with higher oil prices usually boosting the currency. Inflation also affects the CAD because rising inflation can lead to interest rate hikes, making the currency more attractive. Key economic data like GDP and employment figures guide the CAD’s movement. A robust economy typically strengthens the CAD, while poor data can weaken it. Currently, the EUR/CAD is trading near 1.4850, a notable difference from the 1.6150 level seen in 2025. The primary driver now is the clear policy gap between the Bank of Canada (BoC) and the European Central Bank (ECB). This difference makes shorting the pair an appealing option in the coming weeks.

Market Strategies

The Canadian dollar is finding strong support from high energy prices, a shift from concerns we had in the past. West Texas Intermediate (WTI) crude oil is stable around $82 a barrel, supported by steady global demand and OPEC+ supply management. Recent IEA reports indicate that global oil inventories are tighter than expected, which should keep oil prices supported and, in turn, bolster the CAD. This strength in commodities enables the Bank of Canada to maintain a hawkish stance, keeping its key interest rate at 3.0%. Reflecting on late 2023, with Canada’s inflation rate over 3%, the BoC has been focused on returning to its 2% target. On the other hand, recent PMI data from Germany indicates a continuing slowdown in manufacturing, putting pressure on the ECB to consider easing its policy sooner. Traders should prioritize the upcoming inflation reports from both Canada and the Eurozone over retail sales figures. We anticipate Canada’s Consumer Price Index (CPI) to remain sticky, likely above 2.5%, reinforcing the BoC’s position and potentially pushing the EUR/CAD lower. Any signs of dovish comments from ECB officials will likely speed up this trend. Though trade tensions from 2025 between the US and EU have eased, new discussions about carbon tariffs are creating a slight headwind for the Euro. Nonetheless, these issues are less important than the significant monetary policy divergence currently observed. The key narrative is a strong, commodity-driven Canadian dollar against a Euro facing economic challenges. Given this outlook, selling rallies in EUR/CAD appears to be a sound strategy. Derivative traders may want to consider buying put options to benefit from potential declines toward the 1.4700 level. Additionally, selling out-of-the-money call spreads could be a practical approach to generate income while maintaining a bearish stance on the pair. Create your live VT Markets account and start trading now.

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