Donald Trump believes that a weakening US dollar is great. Do other countries think so? I seriously doubt it. The euro tested the psychologically important $1.20 level, at which point the export-oriented eurozone economy has struggled significantly in the past. Back in 2025, ECB Vice President Luis de Guindos stated that if EUR/USD were at that level, it would face difficulties. Now, other members of the Governing Council are joining his opinion.

The head of the Austrian National Bank, Martin Kocher, stated that the ECB would be forced to act if the strengthening euro made its inflation forecasts unachievable. His colleague from France, Francois Villeroy de Galhau, claims that the European Central Bank is closely monitoring events in the Forex market and will take them into account when making rate decisions. In this respect, the Governing Council meeting on February 5 promises to be very interesting. There will be no hints of tightening monetary policy. It seems we might revert to monetary expansion!

Dynamics of European Business Activity

Officially, the ECB does not have a target for the euro exchange rate, but in practice, it does. When Germany and the Netherlands are competing with China and Japan for the title of the world's top exporter, it would be nice to help them. Otherwise, the tariff-burdened eurozone economy risks facing another blow. Judging by the dynamics of business activity, it is far from being in ideal health.

The level of 1.20 for EUR/USD is a red line for the ECB, just as 160 for USD/JPY is for the Bank of Japan. However, Tokyo has more leeway and can use currency interventions, potentially with Washington's support. Frankfurt has it much more complicated. It is unlikely that their American colleagues will be pleased if Europeans start selling the major currency pair.

Moreover, it is extremely difficult to counter the emerging bearish trend in the US index. RBC identifies three underlying reasons. The first is debasement trading, where money flows from the international currency market into precious metals. In 2025, gold increased by 65%, and silver by 150%. This rally continues into 2026. The market is not as large as Forex, so significant fluctuations do not require much liquidity. The second reason is the diversification of central banks' currency reserves. The third is hedging the risks of a weakening greenback by non-residents buying American stocks.

Such colossal capital flows are very difficult to resist, even for the Fed. Not to mention the ECB. Although Jerome Powell managed to cast doubt among the "bulls" in EUR/USD with moderately hawkish rhetoric. According to the central bank's head, inflation in the US has not yet been defeated.

Technically, an inside bar may be formed on the daily chart of EUR/USD, indicating uncertainty. This can be played out by setting pending orders to buy euros against the US dollar from 1.1995 and to sell from the pivot level of 1.1930.