EUR/USD: today's focus is on PCE price report

Currency traders are still digesting the Financial Times report that Christine Lagarde, President of the ECB, will not complete her term and will therefore resign before its end.

According to the financial newspaper, "Christine Lagarde could leave the presidency of the ECB before the end of her term in order to be replaced before the French presidential elections. The implicit objective would be to safeguard the institution against the risk of a victory for the National Rally (RN). The ECB has, however, denied any decision at this stage," report economists at Nomura, who reacted as follows:

"Several key mandates on the Executive Board expire in the second half of 2027, notably those of Lagarde, Lane, and Schnabel. Some member states are reportedly considering accelerating decisions to avoid them occurring after the French presidential election. Potential successors include Knot, de Cos, and Schnabel, with de Cos perceived as having an edge according to Nomura, while the consensus leans more towards Knot."

"The impact on monetary policy would be very limited. HICP inflation is expected to be close to 2% and growth around 0.3% per quarter." Nomura anticipates that interest rates will remain unchanged this year and probably next year, reflecting the collegial and consensus-based nature of the ECB.

Two concurring sources told Reuters that Lagarde assured the Governors that her departure was not immediate. This, in itself, does not contradict the FT's report.

On the statistical front, yesterday's session was marked by a significantly exceeded target for durable goods orders (+0.9% month-on-month excluding transportation) in the United States. These figures complete an encouraging picture, following last week's employment and price data, while awaiting PCE prices.

On Tuesday, trading was lively following the release of the ZEW index of confidence in the German economy. This solid score corroborates the latest encouraging macroeconomic data on the recovery of the Eurozone's largest economy. Nevertheless, at 58.2, it contracted slightly compared to the previous month, and more importantly, It falls short of expectations by 7.4 points.

"The ZEW indicator remains stable. The German economy has entered a recovery phase, albeit a fragile one. Considerable structural challenges persist, particularly for industry and private investment. The impending reforms of the social security system should significantly enhance Germany's attractiveness as a business destination," says Professor Wambach, President of the ZEW, regarding the results of the current survey.

The very positive surprise of the Sentix Eurozone investor confidence index, published last week and exceeding expectations, is largely attributable to the German component.

Economists at Swiss Life AM provide context: "The outlook will largely depend on fiscal expansion, the implementation, speed, and effectiveness of which, however, remain uncertain." Spending from the special budget increased significantly in 2025 and is expected to continue rising in 2026. The differences between actual and planned spending further reflect a heterogeneous picture.

"In transport infrastructure, existing resources were quickly committed because projects were already in place and a high priority was placed on maintenance. However, in more complex sectors (energy infrastructure, research, and digitalization), commitments were significantly lower than anticipated, indicating higher requirements in terms of design, permits, and coordination. The budgetary impetus for these structurally important investments therefore largely depends on their implementation." The key here is not the deficit trajectory, but efficient and coordinated execution to quickly fill order books and kickstart production.

Right now, the EUR/USD is trading at $1.1768.

KEY TECHNICAL ELEMENTS
Volatility is easing on the benchmark currency pair near the 20-day moving average (dark blue line), which remains significantly bullish. We have decided to reinstate our long positions on EUR/USD, increasing them as the Bollinger Bands tighten.

MEDIUM-TERM FORECAST
Based on the key technical factors mentioned above, our medium-term outlook for the EUR/USD is positive.

Our entry point is at $1.1776. The price target for our bullish scenario is $1.2465. To protect your capital, we advise you to take a position. Stop-loss order at $1.1645.

The expected profit for this strategy is 689 pips, and the potential loss is 13%.