The stars seem to have aligned in favor of the euro. However, EUR/USD is in no rush to break above the upper boundary of the short-term consolidation range at 1.155–1.170. Ahead of the key July US inflation report, bulls are taking profits. No one wants to rush headlong into danger, as the CPI figures could significantly shake the market.

Before Donald Trump's victory in the US presidential election, monetary policy ruled the Forex market without challenge. Investors played the game of "who's right, the Fed or him?" The White House leader turned everything upside down with his tariffs. However, in August, most trade deals were finalized, reducing uncertainty. Investors have returned their focus to monetary policy.

ECB Deposit Rate Trends and Forecasts

Bloomberg experts expect the European Central Bank to wait until December before cutting the deposit rate by another 25 bps to 1.75%. This would be the last step in the monetary easing cycle. Borrowing costs are projected to remain at this level for 9–10 months before rising domestic demand forces the ECB to change course and shift to monetary tightening.

The Federal Reserve, by contrast, after a long pause, is ready to resume rate cuts. FOMC member Michelle Bowman believes the central bank will cut rates three times in 2025, at each of the three remaining meetings. The main reason cited is the higher risk of labor market cooling than of accelerating inflation.

Thus, the Fed will be moving faster — essentially signing a death sentence for the dollar. Moreover, the White House is pushing for a weaker currency to boost the competitiveness of US companies. The situation could change if the US inflation data surprises with a slowdown in CPI. In that case, the Fed might return to a more cautious approach, which would support the US dollar.

US Inflation Trends

The chances of such a scenario seem lower. Divergence in ECB and Fed monetary policies, combined with capital outflows from the United States to Europe and risk hedging by foreign investors holding US assets, will push EUR/USD higher. What could hinder the bulls?

The main risk is a significant slowdown in global GDP due to Trump's tariffs. An export-oriented economy like the eurozone and its currency would almost certainly suffer from deteriorating global trade. One only needs to recall the negative EUR/USD reaction to the US trade agreements with various countries.

From a technical standpoint, on the daily chart of the main currency pair, the bulls' inability to consolidate above fair value at 1.1650 is the first sign of buyer weakness. A move back above this level or a rebound from support at 1.1525–1.1545 would be reasons to open long positions in EUR/USD.