ECB decision: Interest rates remain unchanged, but the euro repeatedly tests the 1.1800 level.
2026-02-05 21:30:59
On Thursday (February 5), the European Central Bank (ECB) announced its first monetary policy meeting of 2026: maintaining its three key interest rates unchanged: the deposit facility rate at 2.00%, the main refinancing rate at 2.15%, and the marginal lending facility rate at 2.40%, fully in line with market expectations. The ECB statement emphasized that the Eurozone economy has remained resilient in a challenging global environment, supported by low unemployment, a robust private sector balance sheet, gradual increases in public spending in defense and infrastructure, and the supporting effects of past interest rate cuts. It also noted that uncertainty remains regarding the outlook, primarily stemming from global trade policy uncertainty and geopolitical tensions. The ECB reiterated its data-dependent, meeting-by-meeting approach to determining its policy stance, without pre-committing to a specific interest rate path, and its determination to ensure inflation remains stable at the 2% target over the medium term.
Following the announcement of the decision, the euro initially fell against the dollar before rising slightly, fluctuating by about 10 pips, reaching a high of 1.1800. Prior to the data release, the euro traded in a narrow range between 1.1780 and 1.1795, with the market largely in agreement that the rate would remain unchanged, the probability of a March rate cut being less than 15%, and pricing in a cautious pace of easing throughout the year. Immediately after the announcement, the euro briefly came under pressure before quickly rebounding, trading around 1.1795, with limited overall volatility throughout the day. This mild reaction reflects the market's perception that the decision was highly in line with expectations, shifting focus to the subsequent press conference with the central bank governor.
Prior to the decision, the market widely expected the European Central Bank to maintain its recent cautious stance. Most analysts believed that although the recent strength of the euro had put some downward pressure on inflation, the overall economic resilience remained relatively strong, and the policy statement would not introduce any new signals. Strategists emphasized that "data depends on path confirmation, and attention should be paid to statements regarding trade policy uncertainty," while retail traders focused on the euro's technical consolidation after its recent highs, generally believing that the decision itself was unlikely to cause significant volatility, and were more focused on the details of the communication.
Following the announcement of the resolution, market sentiment remained largely stable. Macro analysts noted that the statement reiterated "data-dependent, meeting-based decisions, and no pre-commitment to a path," which was highly consistent with previous expectations. The mention of global trade policy uncertainty and geopolitical tensions was seen as routine statements regarding existing risks and did not change the policy tone. Some prominent strategists stated that "the description of economic resilience was neutral, and the reiteration of the inflation stability target remained firm." Retail investors reacted relatively calmly, with many traders commenting on platforms that "it was completely in line with expectations, and minor fluctuations are reasonable," and that "the euro's initial drop followed by a rise is consistent with the logic of stabilization; attention should be paid to whether the press conference mentions the impact of a strong euro." However, some cautioned that "the description of external uncertainties was neutral, and subsequent data is needed to verify this."
Overall, the market transitioned smoothly from "stable expectations and focus on uncertain details" to "confirmation of reliance on data and lack of new signals." The limited volatility of the euro directly reflects this stable sentiment: the combination of confirmed fundamental resilience and neutral policy statements has not altered the risk appetite pattern in the short term.
This decision maintained its data-dependent core framework in its description of the interest rate path, without providing clear guidance on the future pace of easing. Combined with the positive description of factors supporting economic growth and the usual mention of uncertainties in the statement, the market's pricing of a rate cut this year has not shifted significantly forward or backward. The euro's short-term movement is mainly influenced by the slight adjustment following the decision and the synchronized performance of the US dollar, with technical and fundamental factors showing a low-volatility resonance: the euro had previously retreated from its highs, and this decision did not provide any new catalysts. Intraday focus includes the 1.1770-1.1780 area (which coincides with the recent low and the vicinity of the 50-day moving average). Holding this level could limit downside; if it falls, the next support level to watch is the 1.1750 psychological level (the lower edge of the previous consolidation range).
On the resistance side, 1.1800-1.1820 is the current high and the area that has been repeatedly tested recently. If it can be firmly established again, it will alleviate short-term pressure. Further up, 1.1850-1.1870 is near the high of this month. A breakthrough would require stronger risk appetite or external data to support it.
In the medium to long term, this decision maintains the ECB's commitment to keeping inflation stable at 2% over the medium term, while acknowledging that economic resilience provides a buffer for policy. The mention of global trade policy uncertainties and geopolitical tensions in the outlook reminds the market that external factors may still affect the transmission mechanism, but the central bank has clearly stated its readiness to adjust all its tools to ensure price stability.
The trading range for the euro against the US dollar still needs to be determined by a comprehensive assessment of interest rate differentials in major economies, risk sentiment, and inflation confirmation. Referring to the implied path of the current contract, a reasonable short-term (1-3 months) trading range is 1.1750-1.1850; in the medium term (3-6 months), after the inflation path is confirmed, it is expected to gradually recover towards 1.1900, supported by economic resilience, but this is contingent on the absence of unexpected external disturbances. Traders should closely monitor Eurozone wages, monthly inflation readings, and global trade-related developments to avoid volatility driven by a single event.
This decision represents a routine balancing act by the European Central Bank between economic resilience and external uncertainties. The market has already priced in a stabilizing signal; future price movements will depend on whether the March meeting and intermediate data further confirm the medium-term inflation outlook. During this process, the euro is expected to maintain a relatively low volatility range, with the aforementioned support and resistance levels serving as key references for assessing the strength of policy signals.
Following the announcement of the decision, the euro initially fell against the dollar before rising slightly, fluctuating by about 10 pips, reaching a high of 1.1800. Prior to the data release, the euro traded in a narrow range between 1.1780 and 1.1795, with the market largely in agreement that the rate would remain unchanged, the probability of a March rate cut being less than 15%, and pricing in a cautious pace of easing throughout the year. Immediately after the announcement, the euro briefly came under pressure before quickly rebounding, trading around 1.1795, with limited overall volatility throughout the day. This mild reaction reflects the market's perception that the decision was highly in line with expectations, shifting focus to the subsequent press conference with the central bank governor.
Comparison and Interpretation of Market Sentiment Before and After the Announcement of the Resolution
Prior to the decision, the market widely expected the European Central Bank to maintain its recent cautious stance. Most analysts believed that although the recent strength of the euro had put some downward pressure on inflation, the overall economic resilience remained relatively strong, and the policy statement would not introduce any new signals. Strategists emphasized that "data depends on path confirmation, and attention should be paid to statements regarding trade policy uncertainty," while retail traders focused on the euro's technical consolidation after its recent highs, generally believing that the decision itself was unlikely to cause significant volatility, and were more focused on the details of the communication.
Following the announcement of the resolution, market sentiment remained largely stable. Macro analysts noted that the statement reiterated "data-dependent, meeting-based decisions, and no pre-commitment to a path," which was highly consistent with previous expectations. The mention of global trade policy uncertainty and geopolitical tensions was seen as routine statements regarding existing risks and did not change the policy tone. Some prominent strategists stated that "the description of economic resilience was neutral, and the reiteration of the inflation stability target remained firm." Retail investors reacted relatively calmly, with many traders commenting on platforms that "it was completely in line with expectations, and minor fluctuations are reasonable," and that "the euro's initial drop followed by a rise is consistent with the logic of stabilization; attention should be paid to whether the press conference mentions the impact of a strong euro." However, some cautioned that "the description of external uncertainties was neutral, and subsequent data is needed to verify this."
Overall, the market transitioned smoothly from "stable expectations and focus on uncertain details" to "confirmation of reliance on data and lack of new signals." The limited volatility of the euro directly reflects this stable sentiment: the combination of confirmed fundamental resilience and neutral policy statements has not altered the risk appetite pattern in the short term.
The impact of interest rate cut expectations adjustment on market trends
This decision maintained its data-dependent core framework in its description of the interest rate path, without providing clear guidance on the future pace of easing. Combined with the positive description of factors supporting economic growth and the usual mention of uncertainties in the statement, the market's pricing of a rate cut this year has not shifted significantly forward or backward. The euro's short-term movement is mainly influenced by the slight adjustment following the decision and the synchronized performance of the US dollar, with technical and fundamental factors showing a low-volatility resonance: the euro had previously retreated from its highs, and this decision did not provide any new catalysts. Intraday focus includes the 1.1770-1.1780 area (which coincides with the recent low and the vicinity of the 50-day moving average). Holding this level could limit downside; if it falls, the next support level to watch is the 1.1750 psychological level (the lower edge of the previous consolidation range).
On the resistance side, 1.1800-1.1820 is the current high and the area that has been repeatedly tested recently. If it can be firmly established again, it will alleviate short-term pressure. Further up, 1.1850-1.1870 is near the high of this month. A breakthrough would require stronger risk appetite or external data to support it.
Future Trend Outlook
In the medium to long term, this decision maintains the ECB's commitment to keeping inflation stable at 2% over the medium term, while acknowledging that economic resilience provides a buffer for policy. The mention of global trade policy uncertainties and geopolitical tensions in the outlook reminds the market that external factors may still affect the transmission mechanism, but the central bank has clearly stated its readiness to adjust all its tools to ensure price stability.
The trading range for the euro against the US dollar still needs to be determined by a comprehensive assessment of interest rate differentials in major economies, risk sentiment, and inflation confirmation. Referring to the implied path of the current contract, a reasonable short-term (1-3 months) trading range is 1.1750-1.1850; in the medium term (3-6 months), after the inflation path is confirmed, it is expected to gradually recover towards 1.1900, supported by economic resilience, but this is contingent on the absence of unexpected external disturbances. Traders should closely monitor Eurozone wages, monthly inflation readings, and global trade-related developments to avoid volatility driven by a single event.
This decision represents a routine balancing act by the European Central Bank between economic resilience and external uncertainties. The market has already priced in a stabilizing signal; future price movements will depend on whether the March meeting and intermediate data further confirm the medium-term inflation outlook. During this process, the euro is expected to maintain a relatively low volatility range, with the aforementioned support and resistance levels serving as key references for assessing the strength of policy signals.
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