EUR/CAD saw a rebound after two consecutive days of decline, trading near 1.6120 during the European session on Monday. Traders are keeping a close eye on upcoming German inflation data, specifically the preliminary Consumer Price Index (CPI) and Harmonized Index of Consumer Prices (HICP), set to be released later today for further directional insights.
Eurozone rate hike odds surge as inflation data looms
According to strategists at BNY Mellon, the environment for the European Central Bank (ECB) doves is becoming increasingly difficult. They observe that “the odds are stacked against the doves” with important inflation reports coming out in Germany and the Eurozone this week. Recent unexpected rises in inflation in both France and Spain have, perhaps, justified the hawkish stance, adding weight to the arguments for further policy tightening. BNY Mellon also mentioned that “OIS markets are now indicating a 97% likelihood of a hike in the September meeting,” highlighting a significant shift in how investors are pricing in additional ECB actions ahead of the CPI announcements.
Eurozone retail sales seen stabilising as ECB enters pre-meeting quiet period
Economists from Rabobank suggest that the upcoming Eurozone retail sales data for July, set for release Friday, may show a slight recovery following a decline in June. Nevertheless, they warn that the overall trend remains weak, attributed to diminishing real wage growth impacting consumer demand. They note that comments from ECB’s Philip Lane in Dublin are anticipated, though since the ECB will be entering its pre-rate decision quiet period, he might not be able to address current policy matters, which could limit any new hints about upcoming decisions.
Even as there’s potential for EUR/CAD to gain traction, any upward movement might be limited. This is partly due to support for the Canadian Dollar from rising crude oil prices. Oil markets have rallied after reports from Iran’s Islamic Revolutionary Guard Corps (IRGC) stated that a rogue supertanker caught fire in the Strait of Hormuz after hitting two naval mines.
The IRGC declared that the vessel was illegally trying to transit the strait, issued stern warnings, and reiterated expectations that all maritime traffic should comply with Iranian regulations while navigating the area.
