EUR/CAD Gains as ECB Signals More Tightening Ahead

Traders' Opinions

Summary:

The euro strengthened against the Canadian dollar after ECB policymaker Isabel Schnabel reinforced expectations for further interest rate hikes, while fading Bank of Canada tightening expectations weighed on the loonie.

BUY EURCAD

EXP

TRADING

1.61730

Entry Price

1.64500

1.60400

1.61587 +0.00168 +0.10%

0.0

Pips

Flat

1.60400

Exit Price

1.61730

Entry Price

1.64500

The euro edged higher against the Canadian dollar during Friday's European session, with EUR/CAD recovering from early losses to trade near 1.6150 as investors responded to renewed hawkish messaging from European Central Bank officials. The common currency found support after ECB Executive Board member Isabel Schnabel reiterated that the central bank's fight against inflation is far from over, reinforcing expectations that additional interest rate increases remain on the table.

Schnabel acknowledged that recent economic developments, including easing geopolitical tensions following the Middle East ceasefire, have been more favorable than anticipated. However, she cautioned that policymakers should not become complacent, arguing that inflation remains above target and further monetary tightening will likely be required to return price growth sustainably to the ECB's 2% objective.

Her comments contrasted with the more measured tone struck earlier this week by ECB President Christine Lagarde, who suggested policymakers could avoid an overly aggressive response to geopolitical risks. While Lagarde acknowledged that energy-related inflation remains a concern, she indicated that current price pressures are unlikely to trigger a prolonged surge in long-term inflation expectations.

Markets are placing greater emphasis on Schnabel's hawkish stance, as investors continue to price in the possibility of additional ECB tightening. That outlook has helped underpin the euro, particularly against currencies whose central banks appear increasingly comfortable remaining on hold.

The Canadian dollar, meanwhile, struggled to attract fresh demand as expectations for further Bank of Canada tightening continued to fade. Minutes from the BoC's latest policy meeting showed policymakers remain cautious, balancing persistent inflation risks against uncertainty surrounding potential US trade restrictions and volatile energy markets.

Market pricing reflects that cautious approach. Reuters data shows traders now expect only around 17 basis points of additional tightening by year-end, down sharply from roughly 60 basis points priced just a month ago. The significant shift highlights growing confidence that the BoC is nearing the end of its tightening cycle, limiting support for the commodity-linked currency.

Unless expectations surrounding the Bank of Canada shift materially or commodity prices stage a strong recovery, the divergence between a relatively hawkish ECB and a more cautious BoC could continue supporting EUR/CAD in the near term. Investors will now look ahead to upcoming Eurozone inflation data and Canadian economic releases for further clues on the policy outlook of both central banks.

Technical Analysis

EUR/CAD remains supported by a constructive bullish structure on the 4-hour chart, with price trading near 1.6173 after defending the rising trendline and the key 1.6115–1.6145 support zone. The pair recently corrected from the 1.6265 resistance area, but buyers stepped back in around the 50%–61.8% Fibonacci retracement zone, suggesting the pullback remains corrective rather than a full bearish reversal.

The immediate technical focus is now on 1.6265, which marks the recent swing high and major breakout resistance. A sustained move above this level would confirm renewed bullish momentum and open the door toward 1.6335, followed by 1.6400, which aligns with the projected upside path shown on the chart.

On the downside, initial support sits around 1.6145, followed by stronger support near 1.6115. A break below this region would weaken the bullish setup and expose 1.6075, with a deeper move below that level risking a broader correction toward 1.6020.

Momentum remains constructive, as the pair is holding above the rising trendline and continues to respect higher-low structure. As long as EUR/CAD remains above 1.6115, the path of least resistance remains tilted higher.

TRADE RECOMMENDATION

BUY EUR/CAD

ENTRY PRICE: 1.6173

STOP LOSS: 1.6040

TAKE PROFIT : 1.6450

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