With the ECB holding rates steady and President Lagarde emphasizing that the economy is in a “good place,” markets navigated the delicate balance between optimistic economic assessments and lingering concerns over EU-US trade negotiations.
Let’s examine which pairs from our watchlist made sense to move forward on, and how they performed in this environment of moderate conviction and mixed fundamental drivers.
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The Setup
- What We Were Watching: ECB Monetary Policy Statement for July 2025
- The Expectation: ECB to maintain main refinancing rate at 2.15%
- Data outcome: Rates held steady as expected, with Lagarde striking a less dovish tone than anticipated
- Market environment surrounding the event: Neutral to positive risk sentiment; easing trade deal concerns, and cautious risk-taking as the U.S. prints positive employment data
Event Outcome
The ECB delivered exactly what markets expected in terms of policy action – no change to interest rates. However, the real story unfolded during President Lagarde’s press conference, where she struck a notably optimistic tone about the eurozone economy.
Key points from the ECB decision:
- All three key interest rates remained unchanged, marking a pause after seven consecutive 25bp cuts
- Inflation currently sits at the ECB’s 2% medium-term target
- Domestic price pressures continue to ease, with wages growing more slowly
- Lagarde emphasized the bank remains “data-dependent” and follows a meeting-by-meeting approach
- The ECB President downplayed concerns about potential inflation undershooting, stating that “a minor inflation undershooting did not pose a problem as it was the medium-term outlook that mattered.“
Fundamental Bias Triggered: Less Dovish EUR Setups
Markets approached the ECB decision with cautious optimism as various pieces of the global puzzle seemed to be falling into place. The U.S. had just secured a trade deal with Japan, raising hopes that similar progress could be made with the EU before the August 1 tariff deadline.
Adding to the constructive backdrop, U.S. employment data continued to paint a picture of economic resilience, though this was complicated by persistent speculation about Fed rate cuts and questions about central bank independence following Trump’s comments that Powell “will be out soon.”
EU meetings with China, along with reports that member states approved potential counter measures should discussions with the U.S. break down before August 1, appeared to reassure investors that the region could enjoy some trade resilience.
Global flash PMI releases in the hours leading up to the actual ECB announcement also turned out mostly positive, particularly in the Euro Area, which saw slightly slower contraction in France and Germany, keeping traders in a bit of a cheery mood leading up to the event.
The dollar’s ongoing weakness, driven by these Fed-related concerns and growing rate cut expectations, provided an additional tailwind for EUR/USD positioning ahead of the ECB statement and press conference.
EUR/USD Net Bullish EUR Event outcome + Risk-On Scenario = Arguably the best odds of a net positive outcome
EUR/USD 1-hour Forex Chart by TradingView
In our watchlist discussion, we anticipated bullish EUR/USD behavior if the ECB struck a less dovish tone. Our analysis suggested watching for dips to the Fibonacci retracement levels, particularly the 61.8% Fib around the trend line and former resistance zone.
The pair was trading around 1.1744 at the time of our watchlist post. After the ECB announcement, EUR/USD initially dipped slightly but found support well above our identified technical levels. The real move came during Lagarde’s press conference, where her optimistic comments sparked a rally that took the pair to fresh weekly highs above 1.1788.
In our original watchlist we said, “Look out for dips to the Fibonacci retracement levels, particularly the 61.8% Fib around the trend line and former resistance zone, that could attract more buyers if the ECB announcement highlights a shift away from their previous dovish stance.”
However, price never reached our identified support zone around 1.1670-1.1680. Traders would have needed to position their entries higher than our discussed levels – either catching the shallow pullback after the initial announcement or chasing the rally during Lagarde’s presser to achieve a net positive outcome.
Not Eligible to move beyond Watchlist – Bearish EUR Setups and EUR/AUD long setup
EUR/AUD: Bullish EUR Event outcome + Risk-Off Scenario
EUR/AUD 1-hour Forex Chart by TradingView
EUR/AUD was invalided as both the risk environment leaned on and the target area of interest was blown through well ahead of the target event. But for those who continued to watch, the pair did present a legitimate setup post ECB event.
It found support at the Pivot S1 support area and intraweek swing low (roughly 1.7768) after the event, and with RBA’s ongoing easing bias revealed in their recent minutes, the reversal back to the upside would have been a legit long trigger, at least with low conviction (50% – 60%). And the outcome for that setup would have been net positive, showing that sometimes you have to call an audible on the play in real time as you take on new information.
EUR/JPY Short: Net Bearish EUR Event outcome + Risk-Off Scenario
EUR/JPY 1-hour Forex Chart by TradingView
This setup was predicated on a dovish ECB surprise and broad risk-off sentiment. With the ECB delivering a neutral-to-hawkish message and risk sentiment remaining constructive (Japan had just secured its trade deal with the U.S.), the fundamental case for EUR/JPY weakness didn’t materialize.
In fact, EUR/JPY ended up being one of the stronger performers post-ECB, gaining 0.43% in the hours following Lagarde’s presser. The pair’s strength reflected both the euro’s broad rally and the yen’s usual relative weakness in a risk-on environment scenario.
EUR/GBP Short: Bearish EUR Event outcome + Risk-Off Scenario
EUR/GBP 1-hour Forex Chart by TradingView
Similarly, our EUR/GBP bearish setup didn’t trigger as the fundamental scenario didn’t align. We had been watching for the pair to face resistance around 0.8700 and potentially reverse lower if Sterling benefited from risk-on flows while the euro struggled.
Instead, EUR/GBP actually gained 0.40% following the ECB event, as Lagarde’s optimistic tone plus arguably net negative UK flash PMI updates likely outweighed any possibly strength the British pound could have drawn in from the improved risk sentiment environment.
The Verdict
Our fundamental analysis correctly anticipated the possibility of a less dovish ECB stance, identifying that recent economic indicators had been net positive and that policymakers had been emphasizing caution on further easing. This analysis proved accurate as Lagarde delivered an optimistic assessment of the eurozone economy.
However, our technical execution faced challenges. While EUR/USD did follow our expected bullish trajectory, but the shallow nature of the pullback meant our identified support levels near 1.1670-1.1680 never came into play. Traders following our watchlist would have needed to adapt their entry strategy – either taking positions at higher levels or waiting for a post-event pullback that never materialized to our target zones.
The strategy execution highlighted an important lesson: when fundamental catalysts are strong (in this case, a clearly less dovish ECB), technical support levels may not be tested as price action can remain elevated. The market’s reaction to Lagarde’s comments was swift and decisive, leaving little room for optimal technical entries at our pre-identified levels.
Overall, we rate our discussions as “Neutral” in terms of being supportive of a net positive outcome. While our fundamental read was spot-on and the directional bias proved correct, the technical execution parameters for the legit EUR/USD setup we outlined were too conservative given the strength of the ECB’s message. Successful traders would have needed to either position more aggressively ahead of the event or chase the move during Lagarde’s presser.
Key Takeaways:
Central Bank Communication Trumps Technical Levels
When a central bank delivers a clear shift in tone, as the ECB did with Lagarde’s “good place” comments, technical support levels can become secondary (or not matter at all in some cases). The market’s reaction was immediate and sustained, demonstrating that fundamental catalysts can override technical considerations in the short term.
Be prepared to adapt entry strategies when fundamental drivers are particularly strong. Consider scaling into positions or using market orders during high-conviction events rather than waiting for specific technical levels that may not materialize.
The Power of Relative Central Bank Positioning
Notice how EUR crosses performed differently based on the relative stance of each central bank pair:
- EUR/USD: Rallied as the ECB sounded less dovish while Fed cut expectations persisted
- EUR/JPY: Gained strongly as both currencies had different risk profiles
- EUR/GBP: Rose with the help of fresh bearish UK sentiment updates
- EUR/AUD: Likely benefited from ECB/RBA divergence given Australia’s easing bias
Always consider the relative positioning of central banks, not just absolute stances. A “neutral” ECB can appear hawkish when paired against a dovish Fed or RBA narrative.
Risk Sentiment as a Secondary Driver
While risk sentiment was generally positive (US-Japan trade deal, improving PMIs), it played second fiddle to the ECB’s communication. This demonstrates that during major central bank events, monetary policy signals often override broader market themes, at least in the immediate aftermath.
In most scenarios, don’t overweight risk sentiment during central bank events, especially the top 3 or 4 major central banks (Fed, BOJ, BOE, and ECB). Focus first on the policy message and figure out the amount of weight it would likely have on a currency, then turn to risk appetite and assess there to see if broad market vibes deserve the same weighting on your target asset.
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