The Euro Maintains Leadership Against the Dollar

[Redator]

Yesterday, the European currency continued to strengthen against the U.S. dollar. Traders are now focusing primarily on the divergence between the European Central Bank and the Federal Reserve's policy paths: the former has no plans to change its stance anytime soon, while the American regulator, on the contrary, intends to actively cut rates by the end of the year.

Yesterday, European Central Bank Governing Council member Joachim Nagel stated that there are currently no grounds for changing interest rates and warned that certain components of inflation require ongoing attention.

Although it is still too early to say what will happen with borrowing costs in the coming months, the head of the Bundesbank noted that consumer prices are almost aligned with the 2% target. "I see that we are close to our target," Nagel said on Wednesday. "I don't see any reason to change anything unless something new emerges. But I don't see where that might come from."

ECB officials are generally satisfied with the current level of interest rates, repeatedly describing monetary policy as being in good shape. Most believe that inflation—despite a projected shortfall over the next two years—will remain around 2%, and they are confident that the region's economy is successfully coping with the shocks caused by U.S. tariffs.

However, some policymakers are reluctant to rule out another deposit rate cut, which has already been reduced eight times during this cycle, mindful that consumer price growth could stagnate below the target. President Christine Lagarde recently stated that she would never declare an end to easing, as the current favorable situation could still change. Incidentally, she is scheduled to speak again today.

One of the officials advocating to keep the option of further rate cuts open is Governing Council member Francois Villeroy de Galhau. In a separate interview this week, the French official said that although the ECB is in a good position, that does not necessarily mean its stance is fixed. "The inflation risk is more tilted to the downside," Villeroy said. "Therefore, if there is a next move, I think a rate cut is more likely than an increase," he added.

For now, the difference between the two regulators' policies is fully evident: the euro continues to strengthen, while the U.S. dollar is losing ground. Most likely, this trend will persist.

As for the current EUR/USD technical picture, buyers now need to work on breaking above 1.1680. Only that will allow for a test of 1.1715. From there, it could move up to 1.1745, although doing so without support from large players will be quite challenging. The furthest target is the 1.1765 high. In the event of a decline, I expect significant buyer activity only around 1.1644. If no support is found there, it would be better to wait for a retest of the 1.1614 low or open long positions from 1.1580.

Regarding the GBP/USD technical picture, pound buyers need to break through the nearest resistance at 1.3450. Only then will they be able to target 1.3480, above which further progress will be difficult. The furthest target is the 1.3525 level. If the pair falls, bears will attempt to regain control around 1.3400. If successful, a break below this range would seriously damage the bulls' positions and push GBP/USD down to 1.3370, with a potential extension to 1.3333.

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