Euro Falls vs Loonie Amid French Unrest and Oil Shifts

Key Moments

EUR/CAD Under Pressure as Protests Sweep France

EUR/CAD stayed in negative territory after a bout of volatility, changing hands near 1.5800 during European trading on Monday. The cross opened with a downside gap as the Euro came under pressure amid extensive social unrest in France.

In a televised national address on Sunday, delivered after one of France’s most turbulent days of civil disorder in recent years, President Emmanuel Macron denounced the “shocking” violence linked to protests against rising living costs. The demonstrations in France were described as the largest within a broader wave of protests that also affected Belgium, Italy, and Portugal.

Canadian Dollar Faces Oil-Linked Headwinds

At the same time, EUR/CAD volatility has been shaped by developments surrounding the Canadian Dollar, which is closely tied to commodity dynamics. The CAD faced potential downside as crude oil prices moved lower.

Oil retreated after US President Donald Trump signed an executive order on Friday temporarily suspending key sanctions and tariffs on Russia under the Graham Act, a step expected to increase Russian fuel exports. The action pauses restrictions that Trump had approved just one month earlier following pressure from Congress over Russia’s war in Ukraine. Secretary of State Marco Rubio said the administration would take up to 60 days to assess the economic impact of the move.

Bank of Canada Seen Holding Rates in October

Despite softer crude prices, interest-rate expectations remain a key driver for the Canadian Dollar. Market participants widely expect the Bank of Canada to leave its benchmark rate unchanged at its forthcoming October policy meeting, extending the pause maintained throughout the year. A potential rate increase is seen as a possibility for December.

With inflation running close to the BoC’s 2% target and signs of increasing slack in Canada’s labor market, investors currently see limited rationale for an immediate policy tightening.

RBC Outlook: Canadian CPI Expected to Stay at 3%

Royal Bank of Canada economists anticipate that Canadian inflation will remain lodged at its existing level. They project that the headline Consumer Price Index will “hold at 3% year-over-year in September for a third consecutive month.” This expected outcome supports their view that, although price pressures persist, headline inflation is no longer accelerating.

Euro: Structure, Policy, and Key Drivers

What Is the Euro?

The Euro serves as the official currency for 20 European Union member states that form the Eurozone. It is the second most actively traded currency globally after the US Dollar. In 2022, it represented 31% of all foreign exchange transactions, with an average daily turnover exceeding $2.2 trillion.

EUR/USD is the most traded currency pair worldwide, accounting for an estimated 30% of all FX transactions. Other key Euro pairs include EUR/JPY at 4%, EUR/GBP at 3%, and EUR/AUD at 2%.

Role of the European Central Bank (ECB)

The European Central Bank (ECB), headquartered in Frankfurt, Germany, functions as the central bank for the Eurozone, setting interest rates and steering monetary policy.

The ECB’s main objective is to maintain price stability, which involves managing inflation and, when necessary, supporting growth. Its primary policy lever is the adjustment of interest rates. Generally, higher interest rates – or expectations of higher rates – tend to support the Euro, while lower rates can weigh on the currency.

The ECB Governing Council, which includes the heads of national central banks from Eurozone countries and six permanent members such as ECB President Christine Lagarde, meets eight times per year to determine monetary policy.

Impact of Inflation Data on the Euro

Inflation in the Eurozone is measured by the Harmonized Index of Consumer Prices (HICP), a key metric for Euro watchers. When inflation rises more than expected, particularly if it moves above the ECB’s 2% target, the central bank may be compelled to raise interest rates to bring price growth back under control.

Relatively higher interest rates versus other major economies generally support the Euro, as they can make Eurozone assets more attractive to global investors.

Economic Indicators and Their Influence

Macroeconomic data releases play a critical role in shaping the Euro’s trajectory. Figures such as Gross Domestic Product (GDP), Manufacturing and Services PMIs, labor market data, and consumer confidence surveys provide insight into the region’s economic health and can move the currency.

A robust economic backdrop is typically constructive for the Euro, not only because it can draw in foreign capital but also because it may prompt the ECB to consider raising rates, directly strengthening the currency. Conversely, weak data can put downward pressure on the Euro.

Data from the four largest Eurozone economies – Germany, France, Italy, and Spain – carry particular weight, as these countries collectively make up 75% of the bloc’s overall economy.

Trade Balance and the Euro

The Trade Balance is another important release for Euro traders. It measures the gap between what a country or region earns from exports and what it spends on imports over a given period.

When a country produces goods and services that are in strong demand globally, its currency can benefit from the additional demand generated by foreign buyers. A positive trade balance typically supports a currency, while a negative balance can have the opposite effect.