The return of global risk appetite following constructive talks between the U.S. and China, where both sides signaled progress toward reducing tariffs on Chinese goods. The de-escalation of trade tensions supports a broader risk-on environment, favoring commodity-linked currencies like the Canadian dollar while weighing on the more defensive euro.

From a macro perspective, Canada stands to benefit from improved global trade flows and firmer commodity demand, especially for oil, a key Canadian export. The Canadian dollar typically strengthens in pro-growth, risk-on settings, particularly when driven by positive trade developments involving major economies like China and the U.S.

Conversely, the euro remains vulnerable amid uneven growth in the Eurozone and lingering uncertainty over ECB policy normalization. In a world moving back toward reflation and global trade recovery, the euro’s low-yielding, risk-averse profile makes it less attractive relative to pro-cyclical peers like the CAD.

Technically, EUR/CAD has failed to sustain upside momentum and now sits near key resistance levels, offering a favorable risk-reward setup for shorts. We expect further downside as markets continue to price in reduced global trade risk and firmer commodity-linked currency performance.

SHORT EURCAD

May 12 2025