Euro weakens against Canadian Dollar amid higher crude oil prices weigh on EUR/CAD

• EUR/CAD depreciates as the Canadian Dollar gains ground as oil prices jump on energy supply fears.
• Drone strikes on Saudi Aramco's Shaybah oil field and Middle East friction spark crude rally.
• Danske Bank suggests that Euro's recent decline is driven by sentiment, fueled by elevated energy prices and French debt concerns.

EUR/CAD extends its losing streak for the third successive day, trading around 1.5750 during European hours on Thursday. The currency cross has depreciated as the commodity-linked Canadian Dollar (CAD) gained strength, driven by a sharp rally in crude oil prices. Energy markets surged following a drone attack on Saudi Aramco’s Shaybah oil field that left two dead, sharpening geopolitical tensions in the Middle East and renewing fears over global supply disruptions.

Compounding geopolitical strains in the region, Iranian Foreign Minister Abbas Araghchi stated that the United States must dismantle its naval blockade and demonstrate a genuine commitment to a diplomatic resolution. Araghchi affirmed Tehran's readiness to re-engage in negotiations provided Washington offers concrete evidence of a sincere effort to secure a permanent and equitable end to the conflict.

Meanwhile, Eastern European tensions have intensified as Ukraine launched a series of large-scale drone strikes against critical Russian oil infrastructure. The military campaign signals Kyiv's clear intent to disrupt Moscow's planned expansion of diesel exports, which had been arranged under a recent agreement between Presidents Trump and Putin.

Strategists at Danske Bank observe that the latest move lower in the Euro has been primarily a sentiment-driven story, stressing that “the decline in the single currency is driven by the combination of high energy prices and EUR-pessimism on the back of French debt worries.” They note that these factors have reinforced existing caution toward the single currency, keeping investors wary of adding Euro exposure despite the absence of a clear directional catalyst from broader markets.

Eurozone tightening shifts to markets as ECB weighs three-pronged response

Economists at ING argue that, with markets effectively tightening financial conditions amid the French fiscal-driven sell-off in Eurozone bonds, the onus is shifting back to policymakers. According to the bank, “given the challenges of justifying the activation of TPI at present, we expect the ECB to adopt a three-pronged approach to address the French crisis,” combining a more dovish communication on rates, adjustments to its balance sheet plans and, if needed, targeted use of its existing backstop tools.