EUR/CAD traded around 1.6070 on Monday, up 0.11%, holding a firmer tone even after a faster-than-forecast Canadian inflation print lent some support to the Canadian Dollar. Canada’s CPI rose 3% year on year in July versus 2.8% in June, while prices increased 0.5% month on month. The Bank of Canada’s core measure rose 2.3% year on year and 0.2% month on month, and other preferred gauges also strengthened: Common CPI ticked up to 2.7% from 2.6%, Trimmed CPI to 1.9% from 1.8%, and Median CPI to 2% from 1.9%. Gasoline and travel tours pushed the headline rate higher, while slower store-bought food inflation tempered the move.
The Canadian Dollar’s follow-through was limited as the euro drew support from expectations the ECB could tighten further, with inflation still above its 2% target. Eurozone GDP returned to growth in the second quarter after stagnation previously, and employment continued to rise at a moderate pace, keeping a 25-basis-point hike in play for September. Nordea expects three more 25bp increases to a 3% deposit rate, but now sees quarterly moves in September, December and March 2027, and points to geopolitical outcomes as a swing factor. It also sees longer bond yields climbing on ample supply, Eurosystem balance-sheet reduction and higher inflation-risk premia.
EUR/CAD’s Positive Bias and Eurozone Support
We suggest derivative traders focus on buying EUR/CAD call options in the coming weeks as the pair holds its positive bias around 1.6070. Despite Canada’s July inflation unexpectedly rising to 3% YoY, the Euro’s momentum remains highly resilient. This persistent strength is driven by positive Eurozone economic growth and strong expectations of a 25-basis-point rate hike by the European Central Bank this September.
Options Strategy: Bull Call Spreads and Risk Management
Historically, when EUR/CAD sustains a break above the 1.6000 mark backed by diverging central bank policies, it frequently rallies toward the 1.6300 level. Right now, one-month implied volatility for the pair is hovering near a stable 7.1%, making long option strategies relatively affordable. Additionally, robust Eurozone employment data indicates that the underlying European economy can support higher interest rates for longer.
We recommend deploying bull call spreads targeting the 1.6150 and 1.6300 strikes to capitalize on this trend while defining our maximum risk. This approach keeps us safe if the Bank of Canada’s rising core inflation, now at 2.3%, triggers sudden CAD strength. Given that the ECB’s rate-hiking path is expected to extend well into March 2027, we believe the upward trend has plenty of room to run.
