German data lift Euro against Canadian Dollar

54.2 was the confirmed reading for Germany's October Manufacturing PMI. The robust expansion supported gains in EUR/CAD.
A 2.0% month-on-month fall in German Retail Sales in September undershot forecasts for a 0.4% increase, reflecting weaker spending.
The Canadian Dollar could come under pressure from lower oil prices after OPEC+ opted to leave December output targets unchanged.

EUR/CAD is up over 0.5%. Trading near 1.5680 in Monday's Asian session, the cross is extending the previous day's modest advance. Support comes from a firmer Euro (EUR) following the release of German economic figures.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

At 54.2, the final October reading for the S&P Global Germany Manufacturing PMI exceeded September's 53.9. It was the second-highest reading in almost four-and-a-half years, behind only August's recent peak. Consumer spending data were weaker: German Retail Sales fell 2.0% month on month in September, reversing August's 1.2% increase, revised from 1.3%. Markets had expected a 0.4% rise. On an annualised basis, September Retail Sales stood at -2.3%, following a 0.3% decline, revised from -0.4.

Lower oil prices could weigh on the commodity-linked Canadian Dollar (CAD), helping EUR/CAD advance. Crude retreated after OPEC+ agreed to keep December oil production targets unchanged, leaving required output at September levels. The arrangement sets Saudi Arabia's allocation at 10.478 million barrels per day (bpd), Russia's at 9.949 million bpd and Iraq's at 4.431 million bpd.

Diplomacy over the Middle East conflict added to the downward pressure on crude. Investors balanced efforts to end the fighting against concerns about renewed US military action against Iran. For a third consecutive day, Qatari and Iranian officials held talks aimed at securing an agreement to end the war before the US midterm elections.

13.6% Brent rise adds to market strain amid AI trade doubts

Reviewing the past month, Deutsche Bank strategists pointed to several overlapping pressures as “investors grappled with mounting doubts around the AI trade, French sovereign stress, and higher energy prices.” Their review highlighted Brent crude, which “(+13.6%) extended its rise amid concerns over renewed US-Iran escalation,” illustrating the direct impact of geopolitical tensions on energy markets. Tighter European gas markets compounded the difficult conditions for risk assets, with “European natural gas [rising] above €100/MWh for the first time since 2022,” adding further pressure.

Euro: Key Questions Answered

20 EU Countries, One Currency: The Euro

Used by the 20 European Union countries in the Eurozone, the Euro ranks second only to the US Dollar in global currency trading. Its share of all foreign exchange transactions reached 31% in 2022, with average daily turnover exceeding $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world's most actively traded currency pair. It is followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The ECB's Role in the Euro's Performance

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone's reserve bank, setting interest rates and overseeing monetary policy. Price stability is its central mandate, pursued through controlling inflation or stimulating growth. Adjustments to interest rates are its main policy tool. Higher relative rates, or expectations of rate increases, generally support the Euro; lower rates have the opposite effect. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone's national banks and six permanent members, among them ECB President Christine Lagarde.

2% Inflation Target: Implications for the Euro

Measured by the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic indicator for the Euro. An unexpectedly strong rise in inflation, particularly above the ECB's 2% target, requires the central bank to increase interest rates to regain control of prices. By making the region more attractive to international investors seeking somewhere to place their funds, interest rates above those of its counterparts generally support the Euro.

75% of Eurozone Output: Why Key Economic Data Matter

The Euro can respond to economic releases because they indicate the economy's health. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys can all shape the single currency's direction. Economic strength supports the Euro by drawing in foreign investment. It may also prompt the ECB to raise interest rates, directly strengthening the currency. Weak figures, by contrast, are likely to push the Euro lower. Particular weight is attached to data from Germany, France, Italy and Spain. Together, these four largest euro area economies represent 75% of the Eurozone's economy.

Trade Balance: A Source of Euro Demand

The Trade Balance is another important release for the Euro. Over a specified period, it compares a country's export earnings with its spending on imports. Strong overseas demand for a country's exports creates additional demand for its currency as foreign buyers purchase those goods, lifting its value. A positive net Trade Balance therefore strengthens the currency, while a negative balance has the reverse effect.