EUR/CAD traded near 1.5990 in European hours on Tuesday, recovering from losses seen in the prior session. The move came as the Canadian Dollar weakened alongside softer oil prices. WTI fell after four straight days of gains and was trading around $99.60 per barrel at the time of writing. The drop followed reports that US President Donald Trump indicated a willingness to stop the campaign linked to the Iran war even if the Strait of Hormuz remains largely shut.

Euro Data In Focus

Market focus in Europe turned to upcoming German Unemployment data and preliminary Eurozone Harmonised Index of Consumer Prices (HICP). The Euro held up despite weaker German Retail Sales figures. German Retail Sales fell 0.6% month-on-month in February versus expectations for a 0.2% rise. January’s reading was revised down to -1.1% from -0.9%. On an annual basis, German Retail Sales rose 0.7% compared with estimates of 1% and a prior reading of 1.2%. Separately, Bank of France Governor François Villeroy de Galhau said policymakers are prepared to respond if energy-led inflation spreads, while noting the central bank cannot stop an initial jump in prices. We see the EUR/CAD cross holding near the critical 1.6000 level, a point of significant resistance we haven’t seen sustained since the pandemic volatility of 2020. The current uncertainty surrounding the Iran conflict suggests traders should consider using options to manage risk. Buying call options on EUR/CAD would allow for upside participation if upcoming Eurozone inflation data surprises, while capping potential losses. The dip in WTI crude oil below $100 is the main factor weakening the Canadian dollar, but we must view this with caution. We saw a similar spike in 2022 when Brent crude briefly topped $120 before falling sharply, and a true de-escalation could see oil prices quickly revert to the $85 range we saw at the end of 2024. Considering the 90-day correlation between WTI and USD/CAD has recently strengthened to -0.7, any further drop in oil prices would almost certainly trigger a strong CAD rally.

Options And Volatility Strategies

On the Euro side, the currency’s strength despite weak German retail sales shows that the market is solely focused on inflation. The consensus for the upcoming Harmonized Index of Consumer Prices (HICP) data is a jump to 5.8%, a significant increase from the sub-3% levels we were enjoying just last quarter. This justifies the ECB’s hawkish commentary and is providing a solid floor for the Euro. This divergence between a geopolitically-driven commodity currency and an inflation-focused major currency will likely keep implied volatility elevated. Traders who believe the cross will remain range-bound while the market digests the news could sell an iron condor, collecting premium from this elevated volatility. Those who expect a decisive break following either a peace deal or a hot inflation print may prefer buying a strangle to profit from a large move in either direction. Create your live VT Markets account and start trading now.

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