The ECB is Ready to Intervene if the Euro Continues to Fall. Part 2

Ben Graham · February 3

Returning to the Eurozone, a 10-15% rise in the euro would pose a serious problem and threaten industrial production and the economy. The President of the Austrian National Bank, Martin Kocher, stated that the central bank may need to resume the cycle of monetary easing if the euro continues to rise. According to him, the recent strengthening of the euro does not require an immediate reaction, but further increases in the euro's value may compel the ECB to cut interest rates again. Kocher called this decision necessary to influence inflation, which risks slowing below 2%.

The Governor of the Bank of Austria believes that a high euro exchange rate will translate into low inflation, which does not suit the ECB. Kocher explicitly stated that a high euro-dollar exchange rate reduces the competitiveness of European goods relative to American goods. The European economy has proven more resilient to the trade war and the rising value of the euro, but Kocher is cautious about predicting economic growth in 2026.

What could a currency war between the US and the Eurozone lead to? It's worth noting that Donald Trump considers the current dollar exchange rate "brilliant" and is fine if it falls a bit more. Trump understands, as do European bankers and politicians, that a low dollar exchange rate will boost export growth and make American goods more attractive globally. Undoubtedly, American products need to be in demand abroad, and the Republicans adhere to policies that evoke a persistent reluctance from half the world to engage with anything American. I have previously written about various boycotts in Europe concerning American cars, alcohol, and other goods.

Therefore, Brussels and Washington may encounter yet another battleground in 2026—currency. It is currently difficult to say how these two superpowers will act. If the ECB resumes cutting rates, it will indeed halt the euro's rise. Likely, much will depend on whether Trump can gain control over the Fed. If so, interest rates in America could be set at whatever he desires. I do not believe that Kevin Warsh will be called upon to preserve the Fed's independence and commitment to its two main mandates. In my opinion, the only condition for obtaining a job at the Fed is absolute obedience to the White House. If Trump gains control of the Fed, the ECB will not be able to use rate cuts to lower the euro's value as effectively as it would like.

Wave Picture for EUR/USD:

Based on the analysis of EUR/USD, the instrument continues to build an upward trend segment. Donald Trump's policies and the Fed's monetary policy remain significant factors in the long-term decline of the American currency. Targets for the current trend segment may reach the 25 figure. At the moment, I believe the global wave 4 has completed its formation, so I expect further increases in prices. However, I anticipate a downward wave in the near term, as the a-b-c-d-e wave sequence also appears complete. My readers may consider searching for benchmarks for new purchases in the near future.

Wave Picture for GBP/USD:

The wave picture for the GBP/USD instrument is quite clear. The five-wave upward structure has completed its formation, but the global wave 5 may take on a much more elongated form. I believe that a corrective wave set may be observed in the near future, followed by a resumption of the upward trend. Therefore, in the coming weeks, I can advise looking for opportunities for new purchases. In my opinion, under Trump, the British pound has a good chance of trading at 1.45-1.50 USD. Trump himself welcomes the decline of the dollar. All of his actions have a double positive effect: the decrease of the dollar and the resolution of internal, external, trade, and geopolitical issues.

Key Principles of My Analysis:

Wave structures should be simple and understandable. Complex structures are difficult to trade and often lead to changes.
If there is no confidence in what is happening in the market, it is better not to enter it.
There is never 100% certainty in the direction of movement. Do not forget about protective Stop Loss orders.
Wave analysis can be combined with other types of analysis and trading strategies.

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