Insights 
VT 
Euro Weakness Persists
Today’s currency data exhibits the Canadian Dollar gaining strength, especially against the Japanese Yen. The CAD also showed gains against the Euro, British Pound, and other major currencies. The table compares percentage changes between various currencies, with the Canadian Dollar being particularly robust.
Given the divergence in economic data, we see the path of least resistance for EUR/CAD as lower in the coming weeks. The Bank of Canada (BoC) is being pushed into a corner by inflation that is proving sticky, making another rate cut at their upcoming meeting highly unlikely. This contrasts sharply with a weakening economic pulse in Europe.
The Canadian story is supported by multiple factors beyond the recent stronger-than-expected inflation print. The latest jobs report from Statistics Canada also surprised to the upside, adding 41,000 jobs in September and keeping the unemployment rate steady at 5.5%. This labor market resilience, combined with WTI crude oil prices holding above $85 per barrel after the latest EIA report showed a 2.1 million barrel inventory draw, gives the loonie a solid foundation.
Euro Struggles to Gain Momentum
On the other side of the pair, the Euro is struggling to find any positive momentum. The weak German producer price data confirms a trend of disinflation, which was reinforced by the recent German IFO Business Climate index falling to 85.2, a 12-month low. This ongoing weakness in the Eurozone’s main engine, alongside lingering political fragility in France, caps any potential rally for the single currency.
For our derivative positions, this outlook favors strategies that profit from a decline in EUR/CAD. We are looking at buying put options with November and December expiries, targeting a move towards the 1.6150 level. This approach allows us to capitalize on the expected downside while strictly defining our maximum risk in case of a market reversal.
We must remember how quickly sentiment shifted back in 2023 when central banks pivoted unexpectedly based on just one or two data prints. A sudden cooling in Canadian inflation or an unexpected policy statement from the European Central Bank could quickly unwind this trade. Therefore, maintaining disciplined risk management is critical.
The key catalysts to watch will be the Bank of Canada’s interest rate decision and monetary policy report on October 29. We will also be closely monitoring the preliminary Eurozone inflation figures for October, due out the following week. These events will be crucial in either confirming our bearish stance or signaling a need to adjust our positions.
