Traders preparing for the upcoming European Central Bank meeting this Thursday, which will focus on setting interest rates, should also pay close attention to numerous economic reports this week to assess the direction of monetary policy.
As clarity on trade relations with the United States remains elusive, officials will continue to closely examine new statements and press releases for signs of how the eurozone plans to cope with repeated tariff threats from Donald Trump and other geopolitical shocks.
Uncertainty in transatlantic relations casts a shadow over the eurozone's economic growth prospects. Every statement from Washington is scrutinized, every word weighed for hidden intent. European leaders are forced to navigate between the need to protect their own interests and the desire to avoid a full-scale trade war, the consequences of which could be severe. In this context, the European Central Bank faces a difficult task: on one hand, it must support economic growth through accommodative monetary policy; on the other, it must prevent rising inflation and a depreciation of the euro. European governments also face complex decisions on structural reforms, infrastructure investment, and support for innovation.
New reports—from credit surveys to preliminary July business activity estimates—are unlikely to prevent officials from pausing rate cuts for the first time in a year. However, they will help determine whether further measures may be needed, possibly at the next policy meeting in September, or whether the monetary easing cycle has ended. It is unlikely that the data will tip the balance toward another last-minute rate cut, but any signs of further economic weakening could strengthen the case for keeping future easing on the table.
After eight quarter-point moves that brought the deposit rate to 2%, ECB President Christine Lagarde stated last month that the rate-cutting cycle is nearing its end. Officials believe they are well prepared to withstand the rising uncertainty stemming from Trump's policies, as current interest rates are at a neutral level—neither restricting nor stimulating economic activity.
The final measure of the rate impact came in the ECB's quarterly Bank Lending Survey. Previously, banks reported tightening credit standards due to rising risks. However, Executive Board member Isabel Schnabel said the latest survey showed a stimulative effect, as falling borrowing costs boosted mortgage demand.
Comments from policymakers after the most recent meeting revealed varying levels of concern within the Governing Council about the economic outlook. Bank of France Governor Francois Villeroy de Galhau pointed to growth headwinds and the risk of inflation staying above 2% for an extended period, indicating openness to further rate cuts. Silke Tober, a monetary policy expert at Germany's IMK economic institute, stated that the current rate cuts are insufficient to counter economic weakness—especially given the euro's appreciation this year.
However, other officials emphasize the resilience of businesses and households.
In any case, the end of the rate-cutting cycle could support the euro in the short term, helping it recover against the US dollar after the fairly sharp correction observed in recent weeks.
As for the current EUR/USD technical picture, buyers now need to focus on reclaiming the 1.1655 level. Only this would allow for a move toward testing 1.1690. From there, the pair could climb to 1.1720, though doing so without support from large market participants will be quite challenging. The furthest target would be the 1.1770 high. In the event of a decline, major buying activity is expected only around 1.1615. If no support appears there, it would be better to wait for a break below 1.1580 or consider long positions from 1.1560.
As for the current GBP/USD technical picture, pound buyers need to push through the nearest resistance at 1.3442. Only this would open the way to 1.3481, although breaking above that level could prove difficult. The furthest target is the 1.3532 level. In case of a decline, bears will try to regain control at 1.3405. If they succeed, breaking through this range would seriously weaken the bulls' positions and push GBP/USD toward the 1.3368 low, with the potential to reach 1.3336.
