€ / C$

Improving sentiment in the eurozone should see the single currency make ground against the loonie as the festive season beckons, even if medium-term concerns are starting to make themselves felt.

There are signs Europe's economic austerity version of tough love is finally starting to bring rewards. Ireland blazed a trail for the other bailout nations when last week (13 Dec) it successfully exited the €85 billion rescue by an international troika comprising of the European Union, International Monetary Fund, and European Central Bank. Last week (11 December) also saw EU finance ministers start to hammer out a framework deal on a banking union across the eurozone.

Nor are apparent bailout success and the prospect of a more cohesive banking system the only things to take into consideration. Marshall Gittler, head of global forex strategy at IronFX points out 'the euro has been the strongest of the major currencies this year, but I think as inflation in the eurozone remains below target, the ECB will have to start thinking of further measures to boost liquidity and the currency will start to come off.'

There is little news for traders to assess as the West prepares for Christmas. The key release may be Germany's producer price index (PPI) for November (20 Dec). Anything above 0% will beat expectations for this leading indicator and ease fears of a deflationary spiral. The GfK German Consumer Climate survey for December also falls due on Friday.

Those looking to monitor Canadian inflation levels can look to the core consumer price index (CPI) and the core retail sales releases from Statistics Canada on the same day. Monday (23 Dec) will then bring the latest update on the country's broadest measure of economic activity, the monthly GDP figures for October.

Key levels: Pending the US Federal Reserve's decision on tapering (18 Dec), due as Shares goes to press, the euro is bossing the Canadian dollar around. Should the Fed leave quantitative easing (QE) unchanged at $85 billion, risk appetite would get a further boost, a development which should logically further benefit the single currency.

Following the euro's move above a three-year high of C$1.4382, a Relative Strength Index (RSI) of 64.8 calls for further gains although the EUR/CAD pair is currently beginning to consolidate around C$1.4532, the 100% Fibonacci projection level from May's trough of C$1.2947.

If resistance here gives way then C$1.4532 should provide support for a sustained move higher. The next area of possible consolidation is likely to manifest itself at C$1.4686 and if that cracks then C$1.5188 could be the next stop.