EUR/CAD rose to about 1.6100 during European trading on Tuesday, supported by the Euro after a hawkish tone from the European Central Bank. ECB President Christine Lagarde said policy will stay restrictive until inflation returns sustainably to the 2% target.
Germany’s S&P Global and HCOB Composite PMI fell to a three-month low of 51.9 in March from 53.2 in February. The Services PMI dropped to 50.9 from 53.5, with the slowdown attributed to services.
Eurozone Data In Focus
Upcoming Eurozone Retail Sales and German inflation data later this week may affect expectations for the ECB’s interest rate path. These releases are set to add detail on the outlook for the rest of the year.
The pair also found support as the Canadian Dollar weakened while WTI gave up earlier gains. WTI traded around $103.00 per barrel, and Canada is the largest crude oil exporter to the United States.
Markets also tracked a deadline set by US President Donald Trump for Iran to reopen the Strait of Hormuz by 8:00 PM Eastern Time on Tuesday. He previously warned of possible strikes on Iranian power plants and bridges if demands were not met.
We are watching a familiar setup in the EUR/CAD, with the pair now climbing towards 1.5850. This echoes the situation in early 2025 when hawkish ECB commentary pushed the cross above 1.6100. The divergence between the European Central Bank (ECB) and the Bank of Canada (BoC) seems to be the main story once again.
Strategy And Risk Management
The ECB is once again sounding determined to keep rates restrictive, with current headline inflation stubbornly at 2.8%. However, we remember how in March 2025, a surprise dip in the German Services PMI to 50.9 signaled underlying economic weakness despite the tough talk. This suggests we should be cautious of a similar economic slowdown now, even with the ECB’s firm stance.
In 2025, the Canadian dollar’s fate was tied to volatile oil prices, which peaked around $103 per barrel amid tensions with Iran. A sudden failure to sustain those gains hurt the CAD significantly. With WTI currently trading at a robust $95.50, any sign of de-escalation in current global hotspots could trigger a similar sharp fall, creating headwinds for the Canadian currency.
Given the conflicting signals, we should consider strategies that benefit from a continued move up but also offer protection. Buying long-dated EUR/CAD call options allows us to capitalize if the ECB remains more hawkish than the BoC through the summer. The memory of last year’s sudden economic slowdowns makes holding some downside protection, like buying puts, a prudent hedge against a sharp reversal.
