EUR\/CAD stayed in the red but trimmed its decline, trading near 1.6030 in early European dealings on Monday as the euro softened after Germany\u2019s latest Producer Price Index release. German PPI rose 1.8% year-on-year in June, extending a three-month run of producer inflation, though it eased from May\u2019s 2.2%, the fastest annual pace since May 2023. On the month, prices fell 0.3%, reversing May\u2019s 0.3% rise and marking the first monthly drop since February, while coming in slightly below the market call for a 0.2% decline.<\/p>\n
The Canadian dollar found support from firmer oil, weighing on the cross given Canada\u2019s role as a major crude exporter. Oil has risen nearly 20% in July as tensions between the US and Iran escalated, after an interim peace arrangement unravelled, the US resumed a blockade of Iranian ports and Tehran intensified attacks on shipping near the Strait of Hormuz. The US has carried out a ninth consecutive night of strikes on Iranian targets, while Iranian officials said the ceasefire has effectively been abandoned, raising concerns over potential disruption to Middle East oil flows.<\/p>\n
We advise derivative traders to position for continued downward pressure on the EUR\/CAD cross in the coming weeks. The recent drop in German PPI to 1.8% year-over-year, down from May’s peak of 2.2%, suggests that Eurozone producer inflation is cooling faster than expected. This downward shift, marked by a monthly decline of 0.3%, reduces the European Central Bank’s incentive to maintain aggressive interest rates, which weakens the Euro.<\/p>\n
At the same time, we expect the Canadian Dollar to remain highly resilient due to skyrocketing crude oil prices. With Canada exporting over 4 million barrels of oil per day, the currency is directly benefiting from a massive geopolitical risk premium. Geopolitical escalations have already pushed global oil benchmarks up by nearly 20% this month alone as the conflict in the Middle East intensifies. <\/p>\n
Given the escalating US-Iran hostilities near the Strait of Hormuz, a choke point for over 20% of the world’s petroleum transit, energy markets are facing extreme volatility. We recommend utilizing long call options on Brent or WTI crude to capture further upside potential as supply lines face threat. Alternatively, traders can use volatility strategies like long straddles to profit from sharp, sudden price swings in the energy sector.<\/p>\n
For the EUR\/CAD cross itself, we suggest buying out-of-the-money put options expiring in late August. This strategy allows us to capitalize on the widening divergence between a weakening Euro and a commodity-backed Canadian Dollar while strictly limiting premium risk. We should target support levels near the 1.5800 mark if oil prices continue their rapid upward trajectory.<\/p>\n\n\n\n