The Euro Continues to Lose Ground

[Ben Graham]

While the European currency, although still in a bullish cycle against the dollar, continues its correction, the Vice President of the European Central Bank, Luis de Guindos, stated that risks to financial stability remain high due to the unpredictable outlook for the global economy and trade.

"Vulnerability remains elevated due to uncertainty about geoeconomic trends and the ultimate impact of tariffs in an unstable international environment," Guindos said in his speech in Frankfurt.

In his address, he also emphasized that the ECB will closely monitor developments and is prepared to take necessary measures to ensure financial stability in the euro area. Special attention is being given to inflation, which has slowed significantly but still remains slightly above the regulator's target level.

Guindos stated that maintaining the resilience of banks and the financial system is critically important at the moment, calling for more thorough monitoring and strengthening of the macroprudential framework for the non-bank sector. The comments came just ahead of the ECB's financial stability report, which will be published next week. It will assess the growing threats to banks, which are the main source of financing for companies in the region.

"Europe's economy is coping surprisingly well with the threats," the policymaker said, adding that he currently does not lean toward further interest rate cuts. According to him, economic growth has turned out slightly better than expected, while inflation is actively returning to the 2% target.

As a reminder, last month the IMF highlighted the risks posed by non-bank organizations, stating that traditional lenders could suffer significant capital losses if problems arise in other parts of the system, including hedge funds and alternative asset managers.

Guindos's remarks had little impact on the foreign exchange market.

As for the current technical picture of EUR/USD, buyers now need to consider how to reclaim the 1.1615 level. Only this will allow them to aim for a test of 1.1640. From there, it may be possible to climb to 1.1680, but doing so without support from major players will be quite challenging. The furthest target will be the 1.1710 high. In the event of a decline in the trading instrument, I expect any significant actions from large buyers only around the 1.1590 level. If no one shows up there, it would be better to wait for a renewal of the 1.1565 low or to open long positions from 1.1540.

As for the current technical picture of GBP/USD, pound buyers need to reclaim the nearest resistance at 1.3180. Only this will allow them to aim for 1.3215, above which a breakout will be quite difficult. The furthest target will be the 1.3244 level. In the event of a decline in the pair, the bears will try to regain control over 1.3133. If they succeed, a breakout of this range will deal a serious blow to the bulls' positions and push GBP/USD toward the 1.3085 low, with the prospect of reaching 1.3050.

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