The European Central Bank (ECB) policy meeting for July offered no major surprises. As widely expected, interest rates were left unchanged while the central bank kept other monetary policy tools on hold. However, the new element worth paying attention to was the adjusted forward guidance on interest rates, reflecting the new 2% inflation goal.

Doves were certainly in the building as the central bank pledged to keep interest rates at record lows for even longer to help the eurozone economy. Although ECB President Christine Lagarde stated that ‘the recovery in the euro area economy is on track’, she warned that the Delta variant of Covid-19 threatened Europe’s economic recovery.

All in all, the change in the ECB’s forward guidance was seen as dovish as it allowed for more easy monetary policy. Because of this, it is safe to say that the ECB will remain dovish for the time being or until inflation reaches its 2% target – meaning any soft tapering or rate hikes are out of the picture. This could also increase the possibility of the central bank extending its Pandemic Emergency Purchase Programme (PEPP) beyond March 2022. It is worth keeping in mind that any tweaks to the pace of PEPP are not expected to take place until September 2021 when the ECB issues updated economic forecasts.

Earlier in the week, we took a deep dive into what to expect from ECB meeting and how this could impact the euro. Fast forward, the euro has depreciated against every single G10 currency today.

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In regards to the EURUSD, it remains under pressure on the daily charts with prices struggling to keep above 1.1751 as of writing. A breakdown below this point could open the doors towards 1.1704 and 1.1620.

Should 1.1751 prove to be reliable support, a rebound back towards 1.1850 could be on the cards.

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