EUR/USD Forecast: ECB Seen Holding Rates While September Hike Bets Keep Euro Supported

Quick overview

On Tuesday, July 21, the EUR/USD pair hovered at 1.1425, securing itself above the important 1.1400 support as traders waited on the upcoming monetary policy decisions from the European Central Bank to be announced on Thursday. The pair was trading near the ECB’s official reference rate of 1.1426 on July 20, having traded in a range-bound market for much of the day as traders largely expected interest rates to remain unchanged this week. However, traders will be waiting for Christine Lagarde, the President of the European Central Bank, to provide guidance on inflation and whether policymakers are still suggesting another rate increase in September.

ECB Expected to Leave Rates Unchanged

The European Central Bank is expected to leave all three of its benchmark policy rates unchanged at this week’s meeting after raising them by 25 basis points in June. This last move elevated the deposit facility rate to 2.25%, the main refinancing rate to 2.40%, and the marginal lending facility to 2.65%.

🇪🇺🇺🇸 EUR/USD is testing a key decision zone.

✅ Holding above 1.1406 keeps buyers in control.
🎯 Bulls need a break above 1.1447 to target 1.1463 and 1.1482.
A drop below the rising trendline would shift momentum back to sellers.#EURUSD #Forex #Trading #FXMarkets pic.twitter.com/dtyTd0FSLl

— Arslan Ali (@forex_arslan) July 21, 2026

A survey by Reuters conducted in advance of the meeting reveals that all 74 economists polled believe the ECB is going to stand pat. ECB policymakers, including President Joachim Nagel of the Bundesbank, have previously argued that the recent swings in oil prices are not enough to trigger another policy change at this time.

Instead, the big question will be whether Lagarde is open to another rate increase in September, when the European Central Bank will present its updated inflation and growth forecasts.

Inflation Has Slowed, But Oil Creates New Risks

Eurozone inflation fell to 2.8% in June, from 3.2% in May. This moves inflation closer to the ECB’s target of 2% over the medium-term. But with oil prices rising, inflation risks have returned. Brent crude is still trading at $90 per barrel, while West Texas Intermediate is above $84 per barrel, suggesting that the potential for a new surge in transport, manufacturing and consumer prices is back on the table. Still, the ECB’s latest corporate survey offered a glimmer of relief.

Over 5,000 euro-area businesses expect selling prices to be 3.2% higher a year from now, down from 3.5%, while wage growth expectations have declined from 2.8% to 2.5%. Meanwhile, the median non-labor input cost expectation was 5.2%, down from 5.8%. That means inflation expectations remain under control despite higher energy prices, which gives the ECB scope to keep rates unchanged but with a tightening bias.

September Remains the Bigger Policy Event

Markets now view September as the more likely date for another ECB rate hike. If energy prices remain elevated or core inflation proves sticky, investors expect policymakers to raise rates by another 25 basis points before year-end.

Lagarde is not expected to give forward guidance this week, but is likely to reiterate that all future rate decisions will depend on incoming data, including that of inflation, wages and GDP growth. Comments from Lagarde that inflation is on course to meet the 2% target could weaken the euro, whereas further emphasis on inflation risks driven by energy prices could boost the EUR/USD.

German Sentiment Improves

The euro also rose after Germany’s ZEW Economic Sentiment Index came in higher than expected for the month of July. The index jumped from 10.5 in June to 26.3 in July, exceeding forecasts of around 17.5. Meanwhile, the current conditions index improved from -81.0 to -77.6, though that is still a fairly gloomy reading.

The broader ZEW economic sentiment index for the eurozone, meanwhile, climbed to 23.4 from 9.5, reflecting the view that the outlook for industry and the German budget will improve.

Technical Outlook Favors Buyers Above 1.1406

Technically, the EUR/USD pair continues to be supported by the rising trendline that has provided price support since mid-July. The pair is trading near 1.1425, which is above the 50-period exponential moving average (1.1425) and 100-period exponential moving average (1.1429) on the hourly chart.

Momentum is improving, with the Relative Strength Index (RSI) rising to 55.8, which is bullish but not quite overbought. The next major resistance lies at 1.1447. If the pair closes above this level, it will rise to 1.1463, then 1.1482.

Meanwhile, support near 1.1406 could provide an initial floor; any losses past 1.1393 would undermine the current bullish structure and the pair would fall to 1.1378.

Bottom Line

EUR/USD enters the ECB meeting this Thursday after the consensus was for the 2.25% deposit rate to remain unchanged and for Christine Lagarde to provide guidance. Inflation continues to ease and German investor sentiment has also improved.

However, with oil near $90 a barrel, risks to prices are still elevated and the ECB can’t rule out another rate hike in September. On the charts, traders should keep an eye on 1.1406 and 1.1447 levels, because a decline below 1.1406 would undermine the bullish outlook and put the 1.1393 trendline in play.

ABOUT THE AUTHOR See More

Arslan Ali Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Ali Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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