The release of statistics on European business activity and the German business climate, voting by the Conservative Party for the new leader who will become the British prime minister, and the ECB meeting make the euro the only alternative for the most interesting currency of the last full week of July. Even the next manifestation of the political crisis in Great Britain will surely affect the regional monetary unit, since Brexit influences not only Britain, but also the eurozone.

The ECB meeting rightly claims to be the key event of the five-day session. The consensus assessment of Bloomberg analysts suggests that Mario Draghi will signal a reduction in the deposit rate from -0.4% to -0.5% at the September meeting of the regulator. At the beginning of 2020, the QE program is likely to be revived at €2.6 trillion. The European Central Bank will buy €40 billion in bonds each month. There are more aggressive predictions. For example, UBS, HSBC and Nomura expect two rate cuts to -0.6% in September and in December. Commerzbank claims it will happen in July.

Dynamics of ECB rates

Dynamics of bond purchases

Investors are serious about easing monetary policy, as evidenced by the exceeding chances of reducing the rate by 10 bp at the July meeting of the Governing Council of 50%. A month ago, the figure was at 25%. We all know about such a principle as "sell on rumors, buy on facts", so if the ECB does not give the market what it wants, we can expect the euro to strengthen. Many negative factors are already embedded in its quotes, and the dynamics of EUR/USD, first of all, is determined by the sensitivity of the US dollar to the change in the probability of a decrease in the federal funds rate by 25 bp or 50 bp

The euro is quite capable of responding to the deterioration of European business activity or the German business climate from the IFO Institute. Indicators are leading for GDP. At the same time, the fact that the ECB has lowered economic growth forecasts for 2020–2021 from 1.6% and 1.5% to 1.4% indicates that it remains concerned about the negative impact of Donald Trump's protection policies on German and European exports.

Eurozone GDP Forecasts

The European Commission believes that Germany's GDP in 2019 will expand by a modest 0.5%, which, coupled with sluggish inflation (consumer prices increased by 1.3% in June), provides all the reasons for the ECB to ease monetary policy.

Another interesting event of the week by July 26 will be the release of data on the gross domestic product of the United States for the 2nd quarter. The US economy is likely to slow down from 3.1% to 1.8% q/q. The best result will raise the yield of US Treasury bonds and allow the "bulls" on EUR/JPY and USD/JPY to go to the counter-attack.

Technically, the positions of euro buyers against the yen look hopeless. If they fail to maintain support at 120.5-120.6, the risks of target implementation by 200% with the AB = CD pattern will increase. It turns out to protect an important level - there will be a chance to form and play the reversal wedge pattern.