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market analysis
The battle between eagles and pigeons has not yet ended. Is it a blessing or a disaster for the strong euro?
Wonderful introduction:
Walk out of the thorns, there is a bright road covered with flowers; when you reach the top of the mountain, you will see the cloudy mountain scenery like green clouds. In this world, a star falls and cannot dim the starry sky, a flower withers and cannot desolate the whole spring.
Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Review]: The battle between eagles and pigeons has not yet ended, is a strong euro a blessing or a disaster?". Hope it will be helpful to you! The original content is as follows:
On Thursday at 20:15 (July 24), the European Central Bank (ECB) will announce its July interest rate resolution and hold a press conference by Governor Lagarde at 20:45. Although interest rate stability has become a market consensus, the monetary policy statement and the wording at the press conference are still regarded as a key trigger for the fluctuations in the EUR/USD (EUR/USD) exchange rate. This meeting may become an important signal light for policy direction.
The market generally expects that the ECB will suspend the seven-round interest rate cut cycle since last year at this meeting. What supports this judgment is that the euro zone inflation has basically fallen back to the policy target range. In June, the overall inflation rate measured by the Eurozone's Reconciled Consumer Price Index (HICP) was exactly 2%. Although service industry inflation rose slightly to 3.3% from 3.2% in May, it is still lower than 4% in April, showing a gradual ease. This inflation path strengthened the effectiveness of previous monetary easing policies and provided a reasonable basis for postponement of further interest rate cuts.
However, maintaining stability does not mean inaction. The eurozone is currently facing a series of external variables, especially the trade negotiations with the United States have entered a critical stage. According to European xm-links.commission sources cited by the Financial Times, the United States and Europe may be approaching a new agreement that may cancel tariffs on some goods and impose a unified 15% tariff on European exports. If such policies are finally implemented, they will directly affect the recovery path of the eurozone export-oriented economy and form new inflation disturbances through input costs.
In this context, analysts believe that the ECB is more likely to continue the "data-dependent" policy strategy, and to respond to possible upward cost-driven inflation pressures by flexibly adjusting its statements, while retaining the policyspace.
The cost of the appreciation of the euro: the risk of deflation emerges
Since 2025, the euro has continued to strengthen against the US dollar, benefiting in part from the structural weakness of the US dollar. One of the main reasons for the weakening of the US dollar is the intensified uncertainty in the U.S. political situation—especially reflected in Trump’s interference in the Fed’s independence and uncertainty in its trade policy. In addition, the market expects the Federal Reserve to start a rate cut cycle ahead of schedule, which also suppresses the performance of the US dollar index.
The appreciation of the euro has indeed improved the import purchasing power of the euro zone in the short term, and has a positive effect on alleviating imported inflation. But its side effects cannot be ignored. On the one hand, the price xm-links.competitiveness of exported xm-links.commodities will be weakened, which is not conducive to the economic recovery driven by relying on external demand; on the other hand, strong exchange rates will further lower inflation, which may trigger an increase in deflation expectations in the context of general weakness in xm-links.commodity prices and insufficient domestic demand.
Analysts generally believe that if the euro continues to remain strong, the ECB may reconsider the option of interest rate cuts in September. Therefore, even if this stability is maintained, the market will still focus on whether Lagarde's speech implies the possibility of policy easing again in the future.
The market has focused on short-term wording guidance, EUR/USD fluctuations may intensify
The recent rebound of EUR/USD from the low point of 1.1556 has successfully reached the key technical level of 1.17. This trend shows that the market has not interpreted the suspension of interest rate cuts as a negative news, but instead reflects sensitive expectations for policy turning points.
Analysts believe that if Lagarde expressed the tone of "continuing inflation to decline" and "careful assessment of trade risks" at the press conference, the market will strengthen its bet on future interest rate cuts. EUR/USD may weaken and may retreat to the initial support area of 1.16 in the short term, and further test the 50-day SMA support level 1.1535. If it is lost, it may fall to the psychological threshold of 1.1500;
On the contrary, if the policy statement emphasizes that "the service industry inflation stickiness is still high" and "the data has upward risks", and reiterates that the policy path depends on data performance, then the market's expectation of interest rate cuts will be pushed back, and the euro is expected to remain strong; in this situation, EUR/USD is expected to test the high point of 1.1829, and if it breaks through smoothly, it will directly reach 1.1900.
The technical structure supports short-term bulls, beware of the upper resistance
From the technical figure, the analysis points out that EUR/USD has re-established 1.17, and the relative strength index (RSI) on the 14th also remained near 62, indicating that the current exchange rate can continue moderately; if it can break through the 1.1829 resistance level, then look at the 1.1900 level; and the lower support is located at 1.16, 1.1535 and 1.1500 in turn;
The intersection of the current technical trend and macro expectations is the sensitive point of the market's short-term trend. If the ECB maintains a "neutral dove" stance, the euro's rise may be limited; if it shows a slight hawkish tendency, it will reignite the appreciation momentum.
The policy path is still to be verified, and maintaining stability does not mean no direction
Overall, analysis believes that although the meeting maintained interest rates unchanged, the next trend of monetary policy is still full of uncertainty. Against the backdrop of the lack of clear external shock risks such as trade barriers, the ECB is more inclined to observe carefully and wait for more economic data to verify;
This is not only an interest rate decision, but also a test of strategic xm-links.communication; traders will keep a close eye on whether Lagarde evaluates the impact of trade shocks, whether to discuss the sustainability of inflation in the service industry, and whether to mention the marginal impact of exchange rate changes on price formation.
The above content is all about "[XM Foreign Exchange Market Review]: The battle between eagles and pigeons has not yet ended, is a strong euro a blessing or a disaster?". It is carefully xm-links.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
Due to the author's limited ability and time constraints, some content in the article still needs to be discussed and studied in depth. Therefore, in the future, the author will conduct extended research and discussion on the following issues:
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