Can the Euro Extend Gains Against the Canadian Dollar After German Data?

EUR/CAD strengthens as Germany's October Manufacturing PMI is confirmed at 54.2, indicating a strong expansion.
Weaker consumer spending saw German Retail Sales slump 2.0% MoM in September, against expectations of a 0.4% increase.
The Canadian Dollar could come under pressure from lower oil prices after OPEC+ opted to leave December output targets unchanged.

EUR/CAD extends its advance during Monday's Asian session, rising over 0.5% to trade near 1.5680 after a modest increase the day before. Supporting the cross is a firmer Euro (EUR), which retains its strength following Germany's economic data releases.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

At 54.2, the S&P Global Germany Manufacturing PMI for October was confirmed above September's 53.9. The reading was the second-highest in almost four-and-a-half years, trailing only the recent peak recorded in August. Consumer spending presented a weaker picture: German Retail Sales fell 2.0% MoM in September, reversing August's 1.2% increase, which was revised from 1.3%. Markets had anticipated a 0.4% rise. On an annualised basis, September Retail Sales registered -2.3%, following a 0.3% decline in the previous period, revised from -0.4.

Potential pressure on the commodity-linked Canadian Dollar (CAD) from weaker oil prices is also supporting EUR/CAD. Oil retreated after OPEC+ agreed to keep December production targets unchanged, leaving required output at September levels. The arrangement sets Saudi Arabia’s allocation at 10.478 million barrels per day (bpd), with Russia at 9.949 million bpd and Iraq at 4.431 million bpd.

Oil also came under selling pressure as investors balanced diplomatic initiatives to end the Middle East conflict against concerns about fresh US military action against Iran. Seeking a deal to bring the war to an end before the US midterm elections, Qatari and Iranian officials held talks for a third consecutive day.

How is the energy surge adding to market stress over the AI trade?

Reviewing the past month, Deutsche Bank strategists point to several simultaneous sources of market pressure, noting that “investors grappled with mounting doubts around the AI trade, French sovereign stress, and higher energy prices.” Their assessment says Brent crude “(+13.6%) extended its rise amid concerns over renewed US-Iran escalation,” illustrating the direct impact of geopolitical tensions on energy markets. Further pressure on an already difficult environment for risk assets came from tighter European gas markets, with “European natural gas [rising] above €100/MWh for the first time since 2022,” according to the strategists.

Euro: Common Questions

Which countries use the Euro, and how widely is it traded?

Used by the 20 European Union countries within the Eurozone, the Euro ranks second only to the US Dollar in global currency trading. Its share of all foreign exchange transactions stood at 31% in 2022, when average daily turnover exceeded $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world's most traded currency pair. Next are EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

Why does the ECB matter for the Euro?

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone's reserve bank, setting interest rates and overseeing monetary policy. Maintaining price stability is its main mandate, whether through containing inflation or encouraging growth. Interest rate increases and cuts are its principal policy instrument. The Euro usually benefits when rates are relatively high, or when higher rates are expected; the reverse also applies. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone's national banks and six permanent members, among them ECB President Christine Lagarde.

Why can inflation figures move the Euro?

For the Euro, a key economic measure is Eurozone inflation, tracked through the Harmonized Index of Consumer Prices (HICP). An unexpectedly sharp rise in inflation, particularly above the ECB's 2% target, obliges the central bank to increase interest rates to regain control of prices. When interest rates are relatively high compared with those elsewhere, the Euro generally benefits because the region becomes a more attractive destination for global investors' funds.

Which economic indicators can move the Euro?

The Euro can respond to economic releases because they indicate the economy's health. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that can steer the single currency. Economic strength supports the Euro by drawing in more foreign investment and potentially prompting the ECB to raise interest rates, which would directly strengthen the currency. Weak economic readings, in contrast, are likely to push the Euro lower. Particular weight is attached to figures from Germany, France, Italy and Spain. Together, these four largest euro area economies represent 75% of the Eurozone's economy.

Why does the Trade Balance matter for the Euro?

The Trade Balance is another important release for the Euro, showing the gap between a country's export earnings and its import spending over a specified period. Strong overseas demand for a country's exports creates additional demand for its currency as foreign buyers seek to purchase those goods, increasing the currency's value. A positive net Trade Balance therefore strengthens a currency, while a negative balance has the opposite effect.