Insights 
VT 
EUR/CAD fell to 1.6180 on Friday, sliding 0.50% as stronger Canadian economic data bolstered the Canadian Dollar. Canada’s GDP showed a 0.6% quarterly increase in Q3, reversing a previous contraction and outpacing expectations with a 2.6% annualised growth rate. The improvements in exports and the reduction in imports contributed to this growth.
Meanwhile, the Euro struggled amidst mixed data from the Eurozone. France reported a stable Harmonised Consumer Price Index (HICP) of 0.8% year-on-year in November, while Italy’s GDP slightly exceeded forecasts with a 0.1% quarterly rise, 0.6% year-on-year. Germany’s inflation readings provided mixed signals, with headline CPI at 2.3% year-on-year in November and harmonised HICP rising to 2.6% year-on-year.
Monetary Policy Outlook
The European Central Bank may leave monetary policy unchanged due to these mixed signals. In contrast, the Bank of Canada is unlikely to cut rates further following the stronger GDP figures, and the Canadian Dollar has room to appreciate. The day’s currency heat map showed the Euro strongest against the British Pound, and the CAD firming across various pairs.
The clear divergence between the Bank of Canada’s outlook and the European Central Bank’s cautious stance suggests a path for continued EUR/CAD weakness. Friday’s strong Canadian GDP report has likely taken another BoC rate cut off the table for the near future. This policy difference is the central theme we should be trading on.
The Canadian economy is showing fundamental strength that supports the Loonie. Recent data from Statistics Canada confirmed the Q3 growth was driven by a widening trade surplus, which grew to C$5.2 billion, reinforcing the currency’s backing. With oil prices remaining stable around $85 WTI, the outlook for Canada’s terms of trade provides an additional tailwind.
Eurozone Challenges
Meanwhile, the Eurozone continues to struggle with inconsistent data, making it difficult for the ECB to justify any hawkish pivot. The latest S&P Global Eurozone Composite PMI flash estimate for November came in at a contractionary 48.2, signaling ongoing economic softness. This reinforces the view that European rates will stay low for longer, weighing on the Euro.
Given this backdrop, we should consider positioning for a further drop in EUR/CAD from its current 1.6180 level. Buying put options with January 2026 expiries offers a way to profit from this expected decline while defining risk. One-month implied volatility has already risen from 6.5% to 7.2% this week, indicating the market is starting to price in larger moves.
We saw a similar pattern back in the 2017-2018 period when the Bank of Canada began a hiking cycle well ahead of the ECB. During that time, the EUR/CAD pair saw a significant and sustained decline as monetary policy diverged. History suggests that these trends, once established, can have considerable momentum.
