EURUSD:
The ECB’s 25-basis-point rate increase has not provided unequivocal support for the euro. At the same time, the central bank warned that the energy shock is increasing inflation risks and lowered its 2026 euro area growth forecast to 0.8%. This creates a difficult environment for the single currency: restrictive policy is needed to preserve price stability, but weak activity and falling real incomes limit demand for European assets.
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The US dollar retains an advantage as markets expect the Federal Reserve to avoid easing policy too quickly. In June, the Committee kept the target range at 3.50%–3.75%, citing resilient economic activity and inflation above target. Markets are awaiting US labour market data and remarks at the ECB forum. A strong employment report could reinforce expectations that US interest rates will remain elevated for longer.
The ECB’s rate increase appears to be more of a response to inflation risks than a signal of accelerating growth in the euro area. As long as uncertainty around energy prices and growth persists, while the US dollar remains supported by Federal Reserve expectations, the baseline scenario for EUR/USD points to further downside. The selling idea is consistent with the divergence in economic resilience and the current demand for the US dollar.
Trading idea: SELL 1.1390, SL 1.1410, TP 1.1330
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