Forex Analysis & Reviews: 06.06.2025 - The EU Economy Will Not...

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06.06.2025 02:56 AM

The EU Economy Will Not Suffer, According to Lagarde

Today, a meeting of the European regulator took place, where the obvious and expected decision was made to lower all three interest rates by another 25 basis points. The decision was made almost unanimously by all ECB governors, with only one policymaker voting against the rate cut. Let me remind you that the decision to conduct another round of easing was quite evident. Inflation in the European Union continues to slow down and is now below the 2% target. Therefore, there is no need for rates above the neutral level.

In addition to the decision to lower interest rates, the ECB also provided updated forecasts for the economy and inflation for the coming years. There were few changes in them. Perhaps the most important message concerned the prospects for the European economy. Many market participants and economists expect that under the pressure of the trade war with the U.S., the EU economy will slow down. However, Ms. Lagarde assured that there would be no economic slowdown. She stated at the press conference that uncertainty in the global economy remains, and U.S. trade policy will weigh on investment and exports. However, government investments in the defense sector and infrastructure will support economic growth.

Ms. Lagarde also noted that inflation in 2025 would be 2%, and in 2026 — 1.6%. Previously, the regulator expected inflation this year to be at 2.3%, and in 2026 — at 1.9%. However, the strengthening of the euro and lower-than-expected energy prices led to a downward revision of the forecasts. The EU economy is expected to grow by 0.9% this year, while the forecast for 2026 was revised from 1.2% to 1.1%. Growth of 1.3% is expected in 2027.

Based on all of the above, I expect that the ECB will continue to ease monetary policy, but certainly, now we are likely talking about one or at most two more rounds before the end of the year. Demand for the euro continues to grow despite the ECB's transition to a "neutral" monetary policy because the market's focus remains on the trade war and Donald Trump's policies.

Wave Structure for EUR/USD:Based on the conducted analysis of EUR/USD, I conclude that the pair continues to build an upward trend segment. In the near term, the wave layout will depend entirely on the news background related to Trump's decisions and U.S. foreign policy. The construction of wave 3 of the upward trend has begun, and its targets may extend as far as the 1.25 level. Therefore, I consider buying with targets above the 1.1572 level, corresponding to 423.6% Fibonacci levels. It should be noted that a de-escalation of the trade war could reverse the upward trend, but at the moment, there are no signs of reversal or de-escalation.

Wave Structure for GBP/USD:

The wave structure of GBP/USD has transformed. We are now dealing with an upward impulsive segment of the trend. Unfortunately, under Donald Trump, the markets may still face many shocks and reversals that do not conform to wave layouts or any type of technical analysis, but for now, the working scenario and layout remain intact. The construction of an ascending wave 3 continues with the nearest target at 1.3708, corresponding to 200.0% Fibonacci from the presumed global wave 2. Therefore, I continue to consider buying, as the market has not yet shown any intention to reverse the trend again.

The Main Principles of My Analysis:

Wave structures must be simple and understandable. Complex structures are difficult to play out and often involve changes.
If there is no confidence in the market situation, it is better to stay out.
One can never have 100% certainty in the direction of movement. Always use protective Stop Loss orders.
Wave analysis can be combined with other types of analysis and trading strategies.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.