With the ECB holding charges regular and President Lagarde emphasizing that the economic system is in a “good place,” markets navigated the fragile stability between optimistic financial assessments and lingering issues over EU-US commerce negotiations.
Let’s look at which pairs from our watchlist made sense to maneuver ahead on, and the way they carried out on this setting of average conviction and combined basic drivers.
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The Setup
What We Had been Watching: ECB Financial Coverage Assertion for July 2025
The Expectation: ECB to keep up most important refinancing fee at 2.15%
Information end result: Charges held regular as anticipated, with Lagarde hanging a much less dovish tone than anticipated
Market setting surrounding the occasion: Impartial to optimistic threat sentiment; easing commerce deal issues, and cautious risk-taking because the U.S. prints optimistic employment knowledge
Occasion End result
The ECB delivered precisely what markets anticipated by way of coverage motion – no change to rates of interest. Nonetheless, the actual story unfolded throughout President Lagarde’s press convention, the place she struck a notably optimistic tone concerning the eurozone economic system.
Key factors from the ECB choice:
All three key rates of interest remained unchanged, marking a pause after seven consecutive 25bp cuts
Inflation presently sits on the ECB’s 2% medium-term goal
Home worth pressures proceed to ease, with wages rising extra slowly
Lagarde emphasised the financial institution stays “data-dependent” and follows a meeting-by-meeting strategy
The ECB President downplayed issues about potential inflation undershooting, stating that “a minor inflation undershooting didn’t pose an issue because it was the medium-term outlook that mattered.“
Elementary Bias Triggered: Much less Dovish EUR Setups
Markets approached the ECB choice with cautious optimism as numerous items of the worldwide puzzle gave the impression to be falling into place. The U.S. had simply secured a commerce cope with Japan, elevating hopes that comparable progress may very well be made with the EU earlier than the August 1 tariff deadline.
Including to the constructive backdrop, U.S. employment knowledge continued to color an image of financial resilience, although this was sophisticated by persistent hypothesis about Fed fee cuts and questions on central financial institution independence following Trump’s feedback that Powell “will likely be out quickly.”
EU conferences with China, together with stories that member states authorized potential counter measures ought to discussions with the U.S. break down earlier than August 1, appeared to reassure traders that the area may take pleasure in some commerce resilience.
International flash PMI releases within the hours main as much as the precise ECB announcement additionally turned out principally optimistic, notably within the Euro Space, which noticed barely slower contraction in France and Germany, preserving merchants in a little bit of a cheery temper main as much as the occasion.
The greenback’s ongoing weak spot, pushed by these Fed-related issues and rising fee reduce expectations, supplied an extra tailwind for EUR/USD positioning forward of the ECB assertion and press convention.
EUR/USD Web Bullish EUR Occasion end result + Danger-On Situation = Arguably the perfect odds of a internet optimistic end result
EUR/USD 1-hour Foreign exchange Chart by TradingView
In our watchlist dialogue, we anticipated bullish EUR/USD habits if the ECB struck a much less dovish tone. Our evaluation steered awaiting dips to the Fibonacci retracement ranges, notably the 61.8% Fib across the development line and former resistance zone.
The pair was buying and selling round 1.1744 on the time of our watchlist submit. After the ECB announcement, EUR/USD initially dipped barely however discovered help nicely above our recognized technical ranges. The actual transfer got here throughout Lagarde’s press convention, the place her optimistic feedback sparked a rally that took the pair to contemporary weekly highs above 1.1788.
In our unique watchlist we stated, “Look out for dips to the Fibonacci retracement ranges, notably the 61.8% Fib across the development line and former resistance zone, that might entice extra patrons if the ECB announcement highlights a shift away from their earlier dovish stance.”
Nonetheless, worth by no means reached our recognized help zone round 1.1670-1.1680. Merchants would have wanted to place their entries larger than our mentioned ranges – both catching the shallow pullback after the preliminary announcement or chasing the rally throughout Lagarde’s presser to attain a internet optimistic end result.
Not Eligible to maneuver past Watchlist – Bearish EUR Setups and EUR/AUD lengthy setup
EUR/AUD: Bullish EUR Occasion end result + Danger-Off Situation
EUR/AUD 1-hour Foreign exchange Chart by TradingView
EUR/AUD was invalided as each the chance setting leaned on and the goal space of curiosity was blown by means of nicely forward of the goal occasion. However for many who continued to observe, the pair did current a professional setup submit ECB occasion.
It discovered help on the Pivot S1 help space and intraweek swing low (roughly 1.7768) after the occasion, and with RBA’s ongoing easing bias revealed of their current minutes, the reversal again to the upside would have been a legit lengthy set off, no less than with low conviction (50% – 60%). And the end result for that setup would have been internet optimistic, displaying that typically you need to name an audible on the play in actual time as you tackle new data.
EUR/JPY Brief: Web Bearish EUR Occasion end result + Danger-Off Situation
EUR/JPY 1-hour Foreign exchange Chart by TradingView
This setup was predicated on a dovish ECB shock and broad risk-off sentiment. With the ECB delivering a neutral-to-hawkish message and threat sentiment remaining constructive (Japan had simply secured its commerce cope with the U.S.), the basic case for EUR/JPY weak spot didn’t materialize.
In actual fact, EUR/JPY ended up being one of many stronger performers post-ECB, gaining 0.43% within the hours following Lagarde’s presser. The pair’s power mirrored each the euro’s broad rally and the yen’s traditional relative weak spot in a risk-on setting situation.
EUR/GBP Brief: Bearish EUR Occasion end result + Danger-Off Situation
EUR/GBP 1-hour Foreign exchange Chart by TradingView
Equally, our EUR/GBP bearish setup didn’t set off as the basic situation didn’t align. We had been awaiting the pair to face resistance round 0.8700 and doubtlessly reverse decrease if Sterling benefited from risk-on flows whereas the euro struggled.
As an alternative, EUR/GBP truly gained 0.40% following the ECB occasion, as Lagarde’s optimistic tone plus arguably internet destructive UK flash PMI updates doubtless outweighed any probably power the British pound may have drawn in from the improved threat sentiment setting.
The Verdict
Our basic evaluation appropriately anticipated the potential for a much less dovish ECB stance, figuring out that current financial indicators had been internet optimistic and that policymakers had been emphasizing warning on additional easing. This evaluation proved correct as Lagarde delivered an optimistic evaluation of the eurozone economic system.
Nonetheless, our technical execution confronted challenges. Whereas EUR/USD did observe our anticipated bullish trajectory, however the shallow nature of the pullback meant our recognized help ranges close to 1.1670-1.1680 by no means got here into play. Merchants following our watchlist would have wanted to adapt their entry technique – both taking positions at larger ranges or ready for a post-event pullback that by no means materialized to our goal zones.
The technique execution highlighted an necessary lesson: when basic catalysts are sturdy (on this case, a clearly much less dovish ECB), technical help ranges is probably not examined as worth motion can stay elevated. The market’s response to Lagarde’s feedback was swift and decisive, leaving little room for optimum technical entries at our pre-identified ranges.
General, we fee our discussions as “Impartial” by way of being supportive of a internet optimistic end result. Whereas our basic learn was spot-on and the directional bias proved right, the technical execution parameters for the legit EUR/USD setup we outlined have been too conservative given the power of the ECB’s message. Profitable merchants would have wanted to both place extra aggressively forward of the occasion or chase the transfer throughout Lagarde’s presser.
Key Takeaways:
Central Financial institution Communication Trumps Technical Ranges
When a central financial institution delivers a transparent shift in tone, because the ECB did with Lagarde’s “good place” feedback, technical help ranges can grow to be secondary (or not matter in any respect in some instances). The market’s response was instant and sustained, demonstrating that basic catalysts can override technical issues within the quick time period.
Be ready to adapt entry methods when basic drivers are notably sturdy. Contemplate scaling into positions or utilizing market orders throughout high-conviction occasions relatively than ready for particular technical ranges that won’t materialize.
The Energy of Relative Central Financial institution Positioning
Discover how EUR crosses carried out in another way based mostly on the relative stance of every central financial institution pair:
EUR/USD: Rallied because the ECB sounded much less dovish whereas Fed reduce expectations endured
EUR/JPY: Gained strongly as each currencies had totally different threat profiles
EUR/GBP: Rose with the assistance of contemporary bearish UK sentiment updates
EUR/AUD: Doubtless benefited from ECB/RBA divergence given Australia’s easing bias
All the time think about the relative positioning of central banks, not simply absolute stances. A “impartial” ECB can seem hawkish when paired in opposition to a dovish Fed or RBA narrative.
Danger Sentiment as a Secondary Driver
Whereas threat sentiment was usually optimistic (US-Japan commerce deal, enhancing PMIs), it performed second fiddle to the ECB’s communication. This demonstrates that in main central financial institution occasions, financial coverage alerts typically override broader market themes, no less than within the instant aftermath.
In most situations, don’t obese threat sentiment throughout central financial institution occasions, particularly the highest 3 or 4 main central banks (Fed, BOJ, BOE, and ECB). Focus first on the coverage message and determine the quantity of weight it could doubtless have on a foreign money, then flip to threat urge for food and assess there to see if broad market vibes deserve the identical weighting in your goal asset.
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