• ECB to decide on rates on Thursday (decision 12:45pm GMT, conference 1:30pm)
  • EURUSD stuck in consolidation, looks for an impulse
  • DE30 remains in an upwards channel. Auto tariffs may prove more relevant in this case

The ECB meeting is usually one of the most important events for the EURUSD. It was the case last time around when the Bank hammered hopes for the interest hike and the euro was hit hard. With the bar of expectations lowered substantially, can the Bank turn things around?

ECB disappointed in June

Let us start from the previous meeting. The ECB had the QE program running until the end of September (it still buys bonds worth 30bn euro each month) and was expected to terminate it toward the end of the year. The decision was indeed to phase down the program throughout the final quarter. Normally it would be positive for the euro but the ECB cushioned it with two buffers:

  • it said that termination would be data dependent
  • pledged not to increase rates at least until September 2019 (and this point did not seem to be data dependent)

Markets were not expecting a hike before September 2019 anyway but this asymmetric pledge was received as a dovish message and caused a sell-off on the EURUSD. 

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ECB killed a rally attempt in June but the EURUSD managed to stay above the key 1.15 level. Source: xStation5 

What could the Bank do in July?

Fast forward to the incoming meeting. The key thing for investors is that the EURUSD managed to defend the key 1.15 handle despite the blow from the Bank. Some members seemed to suggest that interest hike should not be delayed for too long, now the question is if this view is embraced by Mario Draghi. The data has been somewhat mixed. The manufacturing PMIs for July have offered some much awaited rebound, especially in Germany. However, the non-manufacturing sector showed another deceleration (even if it was minimal). Headline inflation in June increased to 2%, so technically it’s above the ECB target (unofficially at 1.8%) but it’s all energy. The core inflation slid back to 0.9% y/y and that will leave Draghi unimpressed. For sure there’s no reason for the ECB to make a major turn in policy communication now. The biggest hope for the EURUSD bulls is that the Draghi is upbeat on the economy and there are no specific expectations. As such, post-meeting conference (Thursday, 1:30pm GMT) will be decisive.

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Yes, inflation picked up but it’s all energy. Core inflation remains soft and the ECB will be in no rush to raise rates. Source: Macrobond, XTB Research 

Technical analysis


After defending the key 1.15 level the pair has been stuck in consolidation. However one might see that a zone around 1.1660 that used to work as a resistance may become a support now so the pair could be a bit better positioned to attack the key 1.1750 level. However, an impulse is needed to crack that upper zone. The next level to watch is 1.1840 (local highs from June, local lows from May). 

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EURUSD has been in a consolidation lately. Will the ECB provide an impulse? Source: xStation5 


The German stock market has been up and down this year. Taking a broader view, defending a lower limit in a broad upwards channel was crucial, especially as it formed a higher low (that represents an upward trend). That could technically pave the way to at least 13200 points on a weekly interval and no pressure from the ECB to raise rates certainly does not hurt. However, bear in mind that other issues (like tariffs on auto exports) could have eventually a bigger impact.  

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DE30 has been mixed so far this year but an upwards trend remains intact. Source: xStation5