EUR/CAD Extends Rally as Strong Eurozone PMIs Lift the Euro

Traders' Opinions

Summary:

EUR/CAD extended its rally after stronger-than-expected Eurozone PMI data reinforced expectations of further ECB tightening, while weaker oil prices pressured the Canadian Dollar.

BUY EURCAD

EXP

TRADING

1.62318

Entry Price

1.63500

1.61450

1.62033 -0.00098 -0.06%

0.0

Pips

Flat

1.61450

Exit Price

1.62318

Entry Price

1.63500

The Euro continued to outperform the Canadian Dollar on Wednesday, with EUR/CAD extending its winning streak that began in late July as stronger-than-expected business activity data from the Eurozone strengthened the case for further European Central Bank interest rate hikes.

Fresh HCOB Purchasing Managers' Index data showed the Eurozone economy regained momentum in July. The Composite PMI climbed to 52.0 from 50.0, returning to expansion territory for the first time since March and recording the strongest pace of growth in eight months. The improvement was driven primarily by the services sector, where the Services PMI rose to 51.7 from 49.4, ending a three-month contraction and posting its fastest expansion since February.

Germany also showed signs of stabilisation. The country's Composite PMI returned to growth at 51.3, while the Services PMI improved to 49.8 from 48.6. Although German services activity remained marginally below the 50-point expansion threshold, the latest reading marked the weakest contraction since April, suggesting conditions are gradually improving.

Rabobank noted that the latest Services PMI releases highlight an increasingly uneven recovery across the Eurozone. While Spain and Italy continued to outperform expectations with strong expansionary readings, France and Germany remained comparatively weak. The bank also warned that escalating tensions in the Middle East during the survey period may have weighed on confidence, particularly across the region's largest economies.

The Canadian Dollar, meanwhile, remained under pressure as crude oil prices hovered near three-week lows. West Texas Intermediate (WTI) recovered modestly toward $75.40 per barrel after suffering losses of nearly 13% over the previous two sessions, but the rebound was limited by growing optimism that diplomatic efforts could ease disruptions to global energy supplies.

Oil briefly found support after Yemen's Houthi movement claimed responsibility for an attack on a Saudi vessel in the Red Sea. However, investors focused instead on reports that the United States, Iran and Oman are close to finalising a temporary agreement to reopen the Strait of Hormuz. According to Axios, the proposed framework would establish a 60-day arrangement governing traffic through the vital shipping route, with provisions for future extensions.

Despite the improving diplomatic outlook, Rabobank cautioned that risks remain elevated. The bank argued that any agreement is designed primarily to prevent further escalation rather than resolve the underlying geopolitical disputes, leaving energy markets vulnerable to renewed volatility should negotiations break down. Even so, weaker oil prices continue to reduce support for the commodity-linked Canadian Dollar, allowing the Euro to maintain the upper hand.

Technical Analysis

EUR/CAD Extends Rally as Strong Eurozone PMIs Lift the Euro_1

EUR/CAD remains firmly bid after breaking through successive resistance levels over the past week, with price now consolidating around the 1.6220-1.6230 region. The latest pause appears to be a healthy retest of the breakout zone rather than a sign of exhaustion, keeping the broader bullish outlook intact.

Buyers are attempting to establish this former resistance as fresh support. If that level continues to hold, the pair is well-positioned to resume its advance toward the next major objective around 1.6350-1.6360, where the next supply area comes into view.

Should the pair slip below the current support, a pullback toward 1.6145 would become increasingly likely. That zone marks the next key demand area and is expected to attract renewed buying interest. A sustained break beneath it would weaken the current bullish structure and suggest a deeper correction is unfolding.

The sequence of higher highs and higher lows remains firmly intact, with recent price action showing buyers are still willing to step in on shallow pullbacks. Unless the breakout level is decisively lost, the path of least resistance continues to favour further upside.

TRADE RECOMMENDATION

BUY EUR/CAD

ENTRY PRICE: 1.6232

STOP LOSS: 1.6145

TAKE PROFIT: 1.6350

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