Storm in Europe: ECB keeps the balance

#EURUSD

Key zone: 1.1600 - 1.1700

Buy: 1.1750 (on strong positive fundamentals) ; target 1.1900; StopLoss 1.1680

Sell: 1.1550 (after a solid breakdown of 1.16) ; target 1.1350; StopLoss 1.1620

The eurozone economy remains under pressure from geopolitical and structural risks. Publication of strong PMI data on Thursday triggered a short-term capital inflow into European assets, including the euro, but growth quickly stalled after details of the US–EU trade agreement were released. The terms of the deal point to an inevitable downturn in the European economy.

The remarks of former ECB President Mario Draghi are also telling: he spoke of the “collapsed illusion of the EU” as a global player — sounding like an epitaph for the European global project.

Latest statistics worth noting:

Germany’s IFO Index

• Business climate (July): 89.0 vs forecast 88.7 and 88.6 previously.
• Current situation: 86.4 vs 86.7 and 86.5 previously.
• Expectations: 91.6 vs forecast 90.2 and 90.7 a month earlier.

Despite positive deviations from forecasts, the market met the data with distrust due to the sharp revision of Germany’s GDP into negative territory. The nervous reaction of investors shows the lack of clear understanding of the economic cycle phase: major players are ready to adjust portfolios at minimal deviations, indicating high levels of fear and risk aversion.

As for ECB monetary policy, the only thing clear for now is that uncertainty persists.

• Most likely, rates will remain unchanged in September.
• If economic conditions worsen, the regulator may return to the idea of a cut by year-end.
• US tariffs on imports from the EU at 15% matched ECB expectations and helped avoid a negative scenario, reducing the probability of immediate easing.
• The prospect of rate cuts will be discussed no earlier than the October meeting, unless new US trade barriers and tariffs and the prolonged war in Ukraine accelerate this process.

Throughout the summer, the EUR/USD pair has maintained a fragile balance: it has not dared to update highs before a new decline. Fundamental factors for euro growth remain limited. However, if the updated BLS invents statistics convenient for Trump in the upcoming NFP, market expectations may temporarily push the pair into the 1.1900–1.2100 range. And from these levels we will start to fall.

So we act wisely and avoid unnecessary risks.

Profits to y’all!