EUR/CAD retraces its recent gains from the previous two sessions, hovering around 1.5020 during early European trading hours. The currency cross remains under pressure following weaker-than-expected German Retail Sales data released on Friday. Market participants now turn their attention to upcoming Unemployment Rate and Consumer Price Index (CPI) figures from Germany due later today.

Germany’s Retail Sales fell by 1.6% month-over-month in December, as reported by Destatis on Friday. This decline followed an upwardly revised of no growth in November and missed market expectations of a 0.2% increase. On a yearly basis, Retail Sales grew by 1.8%, falling short of analysts' forecasts of 2.5%.

On Thursday, preliminary data from Eurostat reported that the Eurozone economy stagnated in Q4 2024 after expanding by 0.4% in Q3. This flat growth was weaker than the anticipated 0.1% increase, adding to concerns about economic momentum in the region.

The Euro remains under pressure amid growing expectations of further interest rate cuts by the European Central Bank (ECB). On Thursday, the ECB lowered its Deposit Facility Rate by 25 basis points (bps) to 2.75%, while the Main Refinancing Operations Rate dropped to 2.9%, in line with forecasts. Markets had already priced in the rate cut, expecting inflation in the Eurozone to remain on a trajectory toward the central bank’s 2% target.

However, EUR/CAD’s downside may be limited as the Canadian Dollar (CAD) faces headwinds due to a dovish shift in the Bank of Canada's (BoC) policy stance. On Wednesday, the BoC reduced its key interest rate by 25 bps to 3.0% and ended its quantitative tightening program, signaling plans to resume asset purchases in early March.

Adding to CAD’s challenges, US President Donald Trump reiterated his intention to impose 25% tariffs on Mexico and Canada—United States’ (US) top two trading partners. The BoC’s policy outlook was further dampened by concerns over potential US trade restrictions, with Governor Tiff Macklem emphasizing that tariff threats remain a significant risk to the Canadian economy.

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