EUR/CAD Trading Guide: How to Trade the EURCAD FX Pair

The EUR/CAD (EURCAD) currency pair, representing the exchange rate between the Euro (EUR) and the Canadian Dollar (CAD), is a widely traded Forex pair.

This article dives into the world of EUR/CAD trading, exploring its features, key factors that influence its price, and various trading strategies you can use to trade the EUR/CAD Forex pair.

TL;DR

• The EUR/CAD currency pair tells you how many Canadian Dollars (CAD) you need to be able to buy one Euro (EUR).
• As of 2022, the EUR is the second most traded currency pair in the world after the American Dollar (USD), with the EUR/USD currency pair being the most traded Forex pair.
• The CAD is a “commodity-currency”.
• As of 2022, the CAD is the 7th most traded currency.
• Currency pairs like the EUR/CAD can be traded through Forex spot and futures markets, as well as Forex options, Exchange-Traded Funds (ETFs) and Contracts For Difference (CFDs)*.
• Forex CFDs are often the top choice for retail traders to speculate on the rising and falling prices of the currency pair without owning the currencies.
• It is possible to use various trading styles such as day trading and swing trading.

*Availability subject to regulation

EUR/CAD Basics

The EUR/CAD is among the most popular Forex pairs to trade, as it represents the exchange rate of two powerful economies: the Euro (EUR) from the Eurozone or Euro Area (and its 20 member states) and the Canadian Dollar (CAD) from Canada.

In its 2002 triennial survey, the Bank for International Settlement (BIS) found out that out of the $7.5 trillion Forex transactions that occur every day on the Forex market, the EUR and the CAD were on one side of 32% and 6.2% of all FX positions, respectively.

As of 2024, the Euro reigns supreme as the currency for 20 European nations, boasting a population of over 340 million. Its influence extends beyond the Eurozone, acting as the official currency in non-EU countries such as Andorra, Kosovo, Monaco, Montenegro, San Marino, and Vatican City.

The single currency's grip extends even wider, with 60 additional countries and territories (representing 175 million people) directly or indirectly pegging their currencies to the euro, such as the Bulgarian Lev (BGN), the Danish Krone (DKK) and the Comorian franc (KMF).

The Canadian Dollar (CAD) is a commodity currency. This means that its value is closely linked to the price of key commodities that Canada exports. As a major Oil (CL) producer, fluctuations in the global oil price can significantly impact the CAD's value. When global oil prices rise, the CAD tends to strengthen, and when they fall, the CAD tends to weaken.

In addition to energy commodities, Canada also exports other types of commodities, such as metals like Nickel, Aluminum (ALI), Uranium, Silver (XAG), Iron and Steel, Gold (XAU), Zinc, Platinum (PL) group metals and Copper (HG).

What Are the Drivers of the EUR/CAD Rate?

Understanding the forces that move the EUR/CAD pair is important before you decide to trade the EUR/CAD, as it is likely to help you identify potential key drivers that push the price of currencies up or down and spot opportunities:

Stage of the Economic Cycle

The stage of the economic cycle, especially expansion vs. recession, in Canada and the countries of the Eurozone can influence the EUR/CAD exchange rate, due to differing currency strengths.

Monetary Decisions from the European Central Bank (ECB) and the Bank of Canada (BoC)

The central banks of both areas, the ECB in the Eurozone and the BoC in Canada, hold regular meetings throughout the year to determine the course of their monetary policies.

These decisions, particularly regarding interest rates, can significantly impact the EUR/CAD exchange rate. In general, higher interest rates in a country can attract foreign investment, leading to a stronger currency. Conversely, lower rates can weaken a currency. The difference in interest rates between the Eurozone and Canada (the rate differential), therefore, becomes an important factor for FX traders.

Beyond interest rates, central banks wield other tools to influence their monetary policies, such as minimum reserve requirements, which can impact bank lending and money supply, as well as open market operations, where a central bank buys or sells government bonds to influence interest rates and overall liquidity.

Local and Global Political & Geopolitical Context

Local and global political landscapes can significantly influence the FX market, such as when uncertainty clouds the political or geopolitical scene. In such times investors often seek safe-haven assets.

Beyond investor sentiment, elections can usher in policy changes that impact economic outlooks. Expansionary fiscal policies, for example, might strengthen a currency, while austerity measures could weaken it, depending on the impact on the economy. These policy shifts in the Eurozone or Canada can influence the relative value of the EUR and the CAD.

Furthermore, geopolitical conflicts or trade wars can disrupt international trade flows, which can, in turn, weaken or strengthen currency pairs depending on where the conflicts arise.

Commodity Prices

Canada's role as a major exporter of commodities, like oil and metals (which are among the most traded commodities), means that global events that disrupt supply chains or increase demand for these commodities can strengthen the CAD, as its value is closely tied to these exports, and weaken the EUR/CAD (and vice-versa).

Unforeseen Events

The EUR/CAD can be influenced by unforeseen events like epidemics, wars, strikes, natural disasters, and extreme weather events.

A large-scale health crisis, for example, can disrupt economic activity and trigger risk aversion among investors, like what we've seen with Covid-19 in 2020. Wars can also leave their mark by disrupting global trade flows, damaging infrastructure and causing widespread uncertainty. The impact on the EUR/CAD pair depends on the specific conflict and its potential influence on the Eurozone and Canada's economies.

Similarly, large-scale strikes crippling industries or economic activity within the Eurozone or Canada could weaken the EUR or the CAD. Natural disasters and extreme weather events are another source of volatility for the currency pair, as they can have large consequences on a currency.

Speculation

Market sentiment, the prevailing mood of the EUR/CAD traders (optimistic or pessimistic about a currency's future value), and speculation can significantly influence the Forex pair, as emotions play a big part in the trading decision process.

That's why it's important for traders to take time to learn how to deal with key trading mistakes and how to control your emotions when trading.

Should You Buy or Sell the EURCAD FX Pair?

To navigate the EUR/CAD market, traders can use two key market analysis methods: technical analysis and fundamental analysis. Let's dive deeper and see how each approach helps them decide whether to buy or sell the EURCAD Forex pair:

Trading EUR/CAD Using Technical Analysis

Technical analysts in trading are all about examining charts to identify recurring patterns and trends that might offer clues about the future direction of EUR/CAD prices.

Beyond just analysing the price action of the EUR/CAD Forex pair, their toolbox can include various technical indicators like the Relative Strength Index (RSI), Moving Averages, the Slow Stochastic Oscillator, the Ichimoku Cloud, the Coppock Curve Indicator, the Bollinger Bands, and the Fibonacci retracements/extensions, among many others.

Additionally, technical analysts can also use different types of trading charts to spot potential confirmation and reversal patterns, such as double top, head-and-shoulders, and hanging man for example, to strengthen their understanding of current market conditions and potential future price movements.

However, mastering technical analysis requires dedication, practice, and time. For those traders focused on longer time horizons, fundamental analysis might be a more suitable approach.

Trading the EUR/CAD Using Fundamental Analysis

Fundamental analysis focuses on different economic data that can have a certain influence on the underlying value of the EUR and the CAD currencies, and the EUR/CAD exchange rate.

Traders usually keep a close eye on economic data that are important for central banks, as they wield significant influence over the Forex market. Because they aim to maintain price stability in the country (or countries) they supervise, inflation figures are some of the most crucial data to monitor, as they directly impact central bank monetary policy decisions.

Of course, other economic releases like growth figures, employment data, consumer spending, and business confidence can also affect the EUR/CAD pair. These statistics provide insights into the overall health of the Eurozone and Canadian economies, which usually influence investor sentiment and ultimately, the FX pair. However, fundamental analysis is more than just economic data.

It also considers how global events, as well as political and geopolitical forces, can create risk aversion (investors potentially seeking safe-haven currencies) or risk appetite (investors potentially seeking currencies with higher returns), ultimately impacting the EUR/CAD and the overall Forex market.

Strategies for Trading the EUR/CAD Forex Pair With CFDs

A EUR/CAD CFD (Contract for Difference) allows you to speculate on the exchange rate without owning the currencies. It offers leverage for potentially amplified profits, but also magnified losses, and allows you to benefit from both rising (long trading positions) and falling (short trading positions) EUR/CAD prices to take advantage of both bullish and bearish markets.

The Forex market offers a variety of trading strategies, from basic Forex approaches to advanced trading techniques. The best strategy to trade the EUR/CAD for you depends on your knowledge, trading experience, risk tolerance, and trading horizon.

Let's take a look at 3 of the most popular trading strategies used on the EUR/CAD FX pair:

Trade the EUR/CAD with the Economic Calendar

One of the most used short-term trading strategies to trade the EUR/CAD's volatility is called news trading. It relies on the economic calendar to know when a significant economic statistic is released in order to try to profit from the short-term impact it can have on the FX pair.

Data about the Eurozone and Canada, such as the Consumer Price Index (CPI), the Consumer Confidence Index (CCI), the Gross Domestic Product (GDP), and the Purchasing Managers' Index (PMI), as well as interest rates, are the most market-moving data for the pair when trading economic data, which means that they're likely to be the most monitored by news traders.

These traders intend to exploit the EUR/CAD's price fluctuation surrounding the release of an important economic release to quickly enter and exit the market. Trading the news usually comes down to having (or not) a directional bias approach.

News traders can try to predict how the news will impact the EUR/CAD rate (up or down) and position themselves accordingly beforehand. In that case, they have a directional bias. For example, if they expect strong Eurozone data to strengthen the Euro relative to the Canadian Dollar, they might buy EUR/CAD before the news release and sell shortly after if their prediction is correct.

For some news traders, it doesn't really matter in which direction the market is heading, as they only expect a big move once the data is released. Usually, they will wait for the news to be published to try to enter a trade when there is a large price swing on the EUR/CAD pair (either up or down).

News-driven volatility in the EUR/CAD market can erupt in three key scenarios:

The first is surprise. When the data deviates significantly from what most analysts predicted (the consensus forecast), for example. This throws prior expectations into disarray, prompting traders to adjust their positions.

Secondly, revisions to previously released data can also trigger market volatility. If these revisions are significant, traders need to reassess their positions based on the new information.

Finally, even data that falls within expectations can cause volatility if the magnitude of change is large. A big difference between the current reading and the previous one can still jolt the market, prompting traders to react to the shifting economic picture.

Trade the EUR/CAD with Moving Averages’ Crossover

Moving averages (MA) act like a smoothing filter for the EUR/CAD market's price action. They calculate the average price over a set period, ironing out short-term fluctuations to reveal the underlying trend.

Different MA types exist, but the Simple Moving Average (SMA) and Exponential Moving Average (EMA) are popular choices for a strategy called a moving average crossover. This trading strategy usually uses two moving averages with different lengths to generate buy and sell signals for EUR/CAD when they cross each other.

A common pairing involves a shorter-term MA, like a 50-day SMA, and a longer-term MA, like a 200-day SMA. When the shorter-term MA climbs above the longer-term MA, it might signal a potential shift towards an uptrend, a pattern often called a “golden cross”. Based on this, traders might enter a long position (buying the EUR/CAD FX pair) anticipating further price increases.

Conversely, if the shorter-term MA dips below the longer-term MA, a pattern often called a “death cross”, it could indicate a potential downtrend. Here, traders might enter a short position (selling the EUR/CAD pair) expecting prices to decline.

One thing to remember is that moving averages are lagging indicators, meaning they react to past price movements rather than predicting the future, so false signals can occur. To minimise risks, traders should use money and risk management tools, and combine this strategy with other indicators might make it more effective.

Trade the EUR/CAD with Breakouts

Breakout traders in the EUR/CAD market usually tend to look for an acceleration in the currency pair's price action after a period of consolidation. This consolidation often takes the form of a trading range where the EUR/CAD has been bouncing between established support and resistance levels with relatively low volatility.

These periods can be seen as a buildup of potential energy in the market, with buyers and sellers reaching an impasse.

But the key moment for breakout traders arrives when the price decisively breaks above resistance or below support, accompanied by a surge in trading volume. This increased volume signifies a potential shift in market sentiment, with more buyers (for a break above resistance) or sellers (for a break below support) entering the market and taking control.

Breakout traders attempt to capitalise on this potential trend shift by buying or selling the EUR/CAD.

If the price breaks decisively above resistance, they might enter a long position, anticipating the EUR/CAD pair to continue rising. Conversely, if the price breaks below support, they might enter a short position, expecting the currency pair to keep falling.

Of course, not all breakouts are successful. Sometimes, the price might experience a "false breakout," briefly breaching a level before reversing direction, which can lead to losses for traders who entered prematurely and do not protect their capital.

The EUR/CAD Forex pair is a popular choice for traders due to its volatility and the numerous factors that influence its price, such as economic conditions, interest rates, and political events in both the Eurozone and Canada. By understanding these factors and using various analysis techniques, such as technical and fundamental analysis, Forex traders can potentially capitalise on the EUR/CAD price movements with financial products like CFDs using trading strategies like news trading, moving average crossovers, and breakouts.

Equipped with this knowledge of EUR/CAD trading, you can start trading on the EUR/CAD CFDs with Plus500.

EUR/CAD Trading - Frequently Asked Questions (FAQs):

EUR/CAD Price Prediction: Should I expect the price of the EUR/CAD to go up or down?

To determine whether the EUR/CAD Forex pair is likely to increase or decrease, there are several factors you can take into consideration. Some of the main ones are the economic performance of the Eurozone and Canada, interest rate differentials between both economic areas, oil prices, and overall market sentiment.

Does the EUR/CAD belong to the major FX pairs?

While the Euro and the Canadian Dollar are both strong and major currencies on the international and trading stage, the EUR/CAD Forex pair is considered a minor FX pair, or a cross, as it doesn't include the American Dollar (USD).

When can I trade the EUR/CAD currency pair?

The Forex market is open around the clock from Sunday to Friday, but the EUR/CAD FX pair might be more active when the European and American Forex sessions are open at the same time. When important economic data about the Eurozone and Canada is released, higher market volatility can also trigger potential opportunities.

How can I trade the EUR/CAD Forex pair?

For retail traders, Contracts For Difference (CFDs) on the EUR/CAD through active and short-term trading styles, such as day trading and swing trading, are a popular way to trade the EURCAD FX pair with a trusted CFD provider like Plus500.

How can I get started with EUR/CAD CFD Trading with Plus500?

Once you've learned the Forex fundamentals of the EUR/CAD and how to trade the Forex pair with CFDs, you can develop your trading plan. Then, you can open a CFD trading account on Plus500 and go to the trading platform to find the "EUR/CAD" currency pair. After that, you can execute a buy or sell market order (or set a limit order) based on your strategy. Before confirming, you should determine your trade size and set stop-loss and take-profit orders following your risk management plan.