Fundamental Summary: 1. Oil Price Shock Alters Rate Cut Path, ECB Likely to Hold Rates Steady: Geopolitical tensions in the Middle East have driven up crude oil prices, completely reversing market expectations for European Central Bank interest rate cuts. The ECB is highly likely to maintain current interest rates at this week's meeting, shifting its policy path from accommodative to neutral-tight. Vanguard Group economist Josefina Rodriguez stated that it is premature for the ECB to signal a policy adjustment, noting it largely depends on the magnitude and duration of the shock. The firm maintains its baseline expectation that ECB rates will remain unchanged until the end of 2026 but has removed the previous dovish bias, indicating that implied further easing space has been eliminated in favor of facing more persistent inflation pressures. LSEG money market data shows a near 100% probability that the ECB will keep its main refinancing rate at 3.65% and deposit rate at 3.25% this week. However, markets are now pricing in 44 basis points of cumulative rate hikes during 2026, a significant upward revision reflecting how energy shocks are reshaping inflation expectations. This expectation roughly corresponds to 1-2 rate hikes of 25 basis points each, potentially pushing the peak policy rate to the 4.00%-4.25% range, indicating investor concerns about persistent energy shocks, inflation expectation de-anchoring risks, and ECB credibility maintenance. Middle East conflicts causing sharp oil price increases have become the biggest uncertainty for Eurozone inflation prospects. Rodriguez noted that the magnitude and duration of oil price spikes will directly determine whether the ECB is forced to shift from "wait-and-see" to "re-tightening." If the shock is temporary, inflation might see only a transitory uptick, allowing the ECB to stick to its data-dependent path. However, if high energy costs persist and transmit to core inflation, it could force policymakers to turn toward rate hikes in 2026 to anchor expectations. The ECB has recently emphasized "close monitoring" of supply-side risks while reiterating its dual mandate of price stability and economic support. However, the risk tilt toward inflation exceeding the 2% target has significantly cooled easing expectations. Previous market-implied tail risks of rate cuts or even negative interest rates in 2026 have now been eliminated. Although the Eurozone economy faces growth slowdown pressures, such as persistent manufacturing weakness and slow consumption recovery, labor market resilience and wage growth continue to support stubborn core inflation, limiting room for easing. The focus of this week's meeting will center on ECB President Christine Lagarde's press conference and updated economic projections. If the shock's persistence is confirmed, market pricing for rate hikes this year could strengthen further, potentially supporting the euro while pressuring risk assets. Conversely, if oil prices retreat quickly or inflation data moderates, the door for easing could reopen. The ECB's current policy path is highly dependent on geopolitical and energy dynamics, requiring investors to closely track Brent crude trends, Eurozone HICP data, and ECB forward guidance. Meanwhile, as eight of the G10 central banks announce rate decisions this week, global financial markets are undoubtedly facing a genuine "super central bank week." This backdrop coincides with Middle East tensions triggering oil price surges, causing market traders to reprice expectations for central bank monetary policy actions with a clear hawkish tilt. However, J.P. Morgan's equity strategy team argues in a recent report that "such expectations may be unreasonable." J.P. Morgan notes that U.S. and German 10-year government bond yields have surged significantly over the past two weeks, with 2-year yields rising 35 basis points and 40 basis points respectively. The bank's rates strategy team points out that unwinding of popular positions has further amplified this move, particularly in European markets. Following the escalation of Middle East conflicts, market expectations for the ECB's policy rate by December 2026 have risen by more than 55 basis points, while traders have also significantly scaled back Fed rate cut expectations, with total cuts priced for this year shrinking by 40 basis points since the start of the month. But the J.P. Morgan team, led by Mislav Matejka, believes that regardless of future geopolitical developments, such bond market moves may be difficult to sustain. J.P. Morgan notes that if conflicts persist alongside high energy prices, economic growth will be suppressed, potentially forcing central banks to overlook the inflation spike. If conflicts ultimately trigger a recession, the likelihood of central bank rate hikes is minimal; if tensions ease, a short-term inflation surge would hardly justify tightening. J.P. Morgan economists expect that if conflicts ease but risk premiums remain elevated, this year's strong growth outlook won't be substantially impacted, but global CPI inflation in 2026 could rise about 0.5 percentage points from already high levels. Nevertheless, the J.P. Morgan team believes this scenario is insufficient to support the current hike expectations priced into European markets, given Europe's relatively higher sensitivity to energy price shocks. The bank's European economics team still expects the ECB to keep rates unchanged in both 2026 and 2027. J.P. Morgan points out a key difference from 2022: the previous inflation surge was driven by post-pandemic shock effects, and the current increase in natural gas prices—critical for Europe—remains far below levels seen after the 2022 Russia-Europe pipeline disruptions. The bank anticipates, "We should soon see a return of long duration positioning."

Traders have fully priced in two ECB rate hikes this year due to attacks on Iranian energy assets reigniting inflation surge fears. Euro interest rate swaps indicate 50 basis points of hikes in 2026, the first such pricing since March 9. The ECB will announce its latest policy decision on Thursday, with economists and money markets widely expecting the deposit rate to be held at 2%. Market focus will shift to the remainder of the year. The latest expectation adjustment followed Wednesday's surge in oil and European natural gas prices after Iran reported attacks by the U.S. and Israel on its South Pars gas field. European government bonds reversed earlier gains, with the 2-year German bond yield rising 9 basis points to 2.47%, its highest level since August 2024. The euro also gave up gains, falling 0.2% to $1.1512.

2. U.S. Inflation Exceeds Expectations Across the Board, February PPI at 3.4% YoY, Core PPI at 3.9% Hits One-Year High: Data released by the U.S. Labor Department on Wednesday showed the Producer Price Index (PPI) rose 3.4% year-over-year in February, exceeding the 3.0% market expectation and accelerating noticeably from the previous 2.9%. Month-over-month, PPI increased 0.7%, the largest monthly gain since July 2025, significantly surpassing the 0.3% forecast and up from 0.5% previously. Core PPI, excluding food and energy, rose 3.9% YoY, above the 3.7% expectation and prior 3.6% reading. It increased 0.5% MoM, also exceeding the 0.3% forecast, with the prior reading at 0.8%. Both figures hit the highest levels since January 2025. The across-the-board beat on U.S. PPI signals renewed inflation pressures, further compressing the Fed's room for rate cuts, while traders further reduced bets on Fed easing in 2026. Over half of the February PPI MoM increase came from a 0.5% rise in services costs, including items like traveler accommodation, food wholesaling, and investment services. Food prices saw their largest increase since mid-2021, partly due to a nearly 49% surge in fresh and dried vegetable prices. Wholesale goods prices jumped 1.1% MoM after declining the previous month. Consumer goods costs excluding food and energy rose 0.3% MoM, marking the third consecutive month with an identical increase. Previously released February Consumer Price Index (CPI) data showed core inflation moderating MoM. However, that was before the Iran conflict erupted. Since then, energy prices have risen significantly driven by geopolitical conflicts and have begun to weigh on consumer confidence. If oil prices remain elevated, both PPI and CPI face risks of further acceleration, with upstream price pressure becoming more pronounced. Hot PPI data directly impacts the Fed's policy path. Core PCE is the Fed's preferred inflation gauge, and PPI serves as an important leading indicator. Currently, input prices are rising faster than output prices, squeezing corporate profit margins, suggesting cost pressures haven't fully passed through to final prices. Market analysis suggests this PPI reading likely signals an upside surprise for core PCE, further reducing the probability of rate cuts. The sudden oil price spike due to the Iran war poses dual risks: potentially pushing inflation higher while simultaneously dragging on economic growth, adding new uncertainty to the Fed's policy path. Previous data already showed core PCE inflation remaining high early this year, diverging from the relatively milder CPI trend, making the Fed's current decision-making environment increasingly challenging.

3. Fed Holds Rates Steady as Expected, Notes Middle East Uncertainty, Raises Inflation Forecasts, Projects One Rate Cut This Year: On Wednesday, March 18, the Federal Reserve's FOMC announced it would maintain the target range for the federal funds rate at 3.50% to 3.75%. This marks the second consecutive pause after three consecutive rate cuts through the end of last year. In its latest economic projections, Fed officials raised inflation and GDP growth forecasts for this year and next. As widely expected, the Fed stood pat, with all voting members except Trump-appointed Governor Stephen Miran supporting the pause. Policymakers remained cautious about cutting rates, keeping the near-term rate outlook unchanged, while specifically noting uncertainty regarding the Middle East situation's impact on the U.S. economy. The released dot plot showed the Fed leadership's near-term rate path projections unchanged from December, still anticipating only one 25-basis-point cut this year (2026) and one cut next year. The Fed's decision was in line with market expectations. By Tuesday's close, CME Group's FedWatch Tool showed a near 99% probability of no cut this week, about 96% for no cut at the April meeting, and slightly over 60% for no cut in July. For the end of 2026, the probability of no cut this year was slightly above 30%, while the chance of cuts was nearly 70%, with about 40% pricing one cut and nearly 30% pricing at least two cuts. Aside from the mention of Middle East impacts, the Fed's statement saw almost no major changes from the previous one. George Goncalves, head of U.S. macro strategy at MUFG, commented that the Fed issued a "neutral" statement, with tweaks "aimed at avoiding sending any specific signal, while also conveying that the Fed is vigilant regarding potential growth shocks and inflation spillovers from the Middle East conflict." Ira Jersey, chief U.S. interest rate strategist at Bloomberg Intelligence, noted that compared to the statement's mention of Middle East uncertainty, the upward revision to inflation projections in the economic outlook was more notable, clearly indicating the Fed is more focused on current oil-related inflation and relatively less concerned about such inflation next year. Thus, the outlook somewhat incorporates this step-up in inflation. Veteran Fed reporter Nick Timiraos noted the Fed held rates steady as "the cloud of war in Iran hangs over the outlook." Ahead of the Fed chair transition, "a new oil shock threatens to prolong the Fed's multi-year fight against inflation." The key difference from the late January statement was the addition of a sentence regarding the Middle East: "The implications of developments in the Middle East for the U.S. economy are uncertain." Preceding this, the statement reiterated the FOMC's commitment to achieving maximum employment and 2% inflation over the longer run, and that the economic outlook remains highly uncertain. Following it, the statement again reaffirmed the FOMC's monitoring of risks to both employment and inflation. Regarding economic conditions, the statement made minimal adjustments compared to the previous one. The previous description of the unemployment rate "showing some signs of leveling off" was changed to "the unemployment rate has changed little in recent months." Commentary suggests this indicates a slightly downgraded assessment of the labor market. Other wording was copied, stating that indicators suggest economic activity "has been expanding at a solid pace," job gains remain modest, and inflation remains elevated. The statement did not mention balance sheet-related changes like Treasury purchases, indicating the New York Fed's Reserve Management Purchases (RMP) program is proceeding as planned without alteration. Another major difference was that among the 12 FOMC voting members, only one dissented this time, halving the number of dissenters from the previous meeting. This means the rate decision received the fewest dissenting votes in the last four meetings. The statement showed 11 FOMC members supported holding rates steady, including Governor Christopher Waller, who had dissented in favor of a 25 bps cut last time. Only Governor Stephen Miran again dissented, voting for a rate cut. This marks the sixth consecutive FOMC meeting with dissents. White House economic adviser Miran has consistently dissented since joining the Board in September last year. The difference is that in September, October, and December last year, he preferred a 50 bps cut, while this year he has supported a 25 bps cut. The median Fed officials' rate projections released after the meeting were mostly unchanged from December's projections. The median projection for the federal funds rate at the end of 2026 is 3.4%, at the end of 2027 is 3.1%, and at the end of 2028 is 3.1%, all unchanged from December. The longer-run rate is 3.1%, compared to 3.0% in December. Based on these median values, as before, Fed officials currently project one 25 bps cut this year and one next year, following three cuts last year. The dot plot showed that among the 19 officials providing projections, seven now project no cut this year, one fewer than last time. Among the 12 projecting at least one cut this year, seven see one cut, two see two cuts, and two see three cuts. Additionally, one projects four cuts, believed to likely be Governor Miran. For next year's expectations, one official projected one rate hike. The economic projections showed Fed officials raised GDP growth expectations for this year, next year, 2028, and the longer run; raised the unemployment rate forecast for next year; and raised PCE and core PCE inflation forecasts for this year and next. Both inflation measures for this year were raised to 2.7%, and for next year to 2.2%. The largest increases were for this year's PCE inflation and next year's GDP growth, both raised 0.3 percentage points. Core PCE for this year, and GDP for 2028 and the longer run were each raised 0.2 percentage points. Specific projections: 2026 GDP growth is projected at 2.4% (vs. 2.3% in Dec 2025), 2027 at 2.3% (vs. 2.0%), 2028 at 2.1% (vs. 1.9%), longer-run at 2.0% (vs. 1.8%). 2026 unemployment is projected at 4.4% (unchanged), 2027 at 4.3% (vs. 4.2%), 2028 and longer-run at 4.2% (unchanged). 2026 PCE inflation is projected at 2.7% (vs. 2.4%), 2027 at 2.2% (vs. 2.1%), 2028 and longer-run at 2.0% (unchanged). 2026 core PCE is projected at 2.7% (vs. 2.5%), 2027 at 2.2% (vs. 2.1%), 2028 at 2.0% (unchanged).

At the press conference, Chair Powell stated in his opening remarks that the U.S. job situation is generally stable, the labor market remains strong, and unemployment is low, but inflation remains elevated. He believes the current monetary policy stance is helping to promote maximum employment and the 2% inflation goal. He said the implications of Middle East developments for the U.S. economy remain uncertain. Powell noted that available indicators suggest economic activity is expanding at a solid pace. Consumer spending remains resilient, and fixed investment continues to grow. In contrast, housing sector activity remains subdued. On employment, Powell said U.S. job gains have moderated. Slower employment growth over the past year largely reflects a decline in labor supply growth, related to reduced immigration and lower labor force participation, while labor demand has also weakened. Other indicators, including job openings, layoffs, hiring, and nominal wage growth, have changed little overall in recent months. In the SEP, the median unemployment rate projection is 4.4% at the end of this year, declining slightly thereafter. On inflation, Powell said U.S. inflation has declined from its mid-2022 peak but remains elevated compared to the 2% target. Data through February showed the headline PCE price index up 2.8% YoY, and core PCE, excluding volatile food and energy, up 3.3%. Higher readings partly reflect rising goods inflation influenced by tariffs. He said near-term inflation expectation measures have risen in recent weeks, possibly reflecting oil price disturbances, while longer-term inflation expectations remain broadly consistent with the 2% goal. The median inflation projection is 2.7% for this year and 2.2% for next year, both slightly higher than December's projections. Powell stated that the implications of the Middle East situation for the U.S. economy remain uncertain. In the short term, rising energy prices will boost headline inflation, but the scope and duration of their economic impact remain to be seen. In the SEP, FOMC participants provided their assessments of the appropriate federal funds rate path based on their economic outlooks. The median projection shows the rate at 3.4% at year-end 2026 and 3.1% at year-end 2027, essentially unchanged from December. Powell emphasized that, as always, these individual forecasts are uncertain and do not represent a committee plan or decision. Monetary policy is not on a preset course; decisions will be made meeting-by-meeting based on the data. In the Q&A session, Powell said a series of shocks have interrupted progress previously made in reducing inflation. He stressed that rate cuts won't occur without seeing further improvement in inflation. He said rates are currently near the level considered neither restrictive nor stimulative, and maintaining a mildly restrictive stance is important. The Fed is in a difficult position, needing to balance various risks. He also mentioned that the possibility of the next move being a hike has indeed been discussed, though most officials do not see this as the base case. Regarding his tenure, Powell confirmed he will not leave during the investigation period. He said if a successor is not confirmed by the Senate, he will continue to serve as acting chair after his term ends to preserve Fed independence from political interference.

On Thursday, March 19, focus in the Eurozone will center on the ECB's interest rate decision at 21:15 local time and the subsequent press conference. Meanwhile, the U.S. initial jobless claims report at 20:30 local time also warrants close attention.

Economic Briefs: France Reaches Out to UK: 'Open Arms' for Single Market Return. French Foreign Minister Jean-Noël Barrot said on the 18th that the EU would welcome the UK "with open arms" if it decided to rejoin the single market. The comments came after UK Chancellor Rachel Reeves stated Britain's willingness to align with EU business rules to boost growth. Barrot noted recent UK mentions of "resetting" the relationship, even including terms like "customs union." Although UK Prime Minister Keir Starmer has ruled out rejoining the single market, the Labour government is increasingly discussing the economic costs of Brexit, making UK-EU relations a focal point. ECB Warning: Geopolitical Risks Underestimated, Bank Supervision Must Not Relax. ECB Executive Board member Claudia Buch warned that financial markets are seriously underestimating geopolitical risks, which could trigger sudden sell-offs. She emphasized that Europe must not follow the U.S. in weakening safeguards amid relaxed bank regulations there. Since the U.S.-Israel war with Iran began, bank stocks have seen orderly volatility, but risks remain high. Buch noted market indicators do not fully reflect uncertainty, and shocks could erupt suddenly and spread rapidly. The ECB has made geopolitical risk resilience an annual priority and will conduct stress tests on major banks in the coming months. EU Proposes '48-Hour Startup' Law, Mirroring U.S. Delaware Model. To narrow the innovation gap with the U.S., the European Commission proposed creating a new "European Company" entity on the 18th, allowing businesses to register online within 48 hours and operate across all 27 member states under a unified rule set. The proposal targets innovative startups, aiming to stem the flow of European unicorns to the U.S. Data shows that although Europe has more startups than the U.S., it had only 110 unicorns by early 2025, far fewer than America's 687. The new entity resembles a U.S. Delaware-style LLC, with a registration fee of only €100, and is expected to attract 300,000 businesses within a decade. Companies would enjoy a unified EU employee stock option plan and simplified bankruptcy procedures but must still comply with national labor and tax laws. EU Commissioner Mairead McGuinness acknowledged it's not a panacea but called for parallel reforms like breaking down single market barriers. The proposal requires approval from member states and the European Parliament. Supporters believe digital means and a sense of competitiveness urgency will make this attempt successful.

Political Briefs: Europe Collectively Refuses Participation in U.S.-Israel War with Iran, Transatlantic Alliance Tested. Facing calls from the Trump administration for allies to contribute forces to the Strait of Hormuz, major European nations this week clearly stated they will not participate in military action against Iran. German Chancellor Friedrich Merz said on the 18th that Berlin "does not recommend the current course of action" and will not participate in safeguarding strait navigation "in any form" as long as the war continues. French President Emmanuel Macron also emphasized "we are not a party to the conflict," while Spanish Deputy Prime Minister Yolanda Díaz stated bluntly "we will never be anyone's satellite." Behind European leaders' refusal lies instinctive wariness of a conflict with unclear objectives and an unpredictable outcome. Merz criticized Washington for neither consulting Europe nor outlining prospects for success. A European official revealed that U.S. war aims are模糊, potentially differing from Israeli intentions regarding regime change. This uncertainty has caused traditionally U.S.-following transatlantic allies to pause and observe. Trump's Pressure Fails, Public Opinion Supports European Stance. Trump reacted strongly to European "defiance," publicly calling allies "very foolish" and mocking UK Prime Minister Starmer as "no Churchill." But European leaders have strong domestic support: 58% of Germans oppose the war, 68% in Spain, and 49% in Britain also disapprove of military action. This public backing even forced the UK Reform and Conservative parties to soften initial support, with Conservative leader Suella Braverman stating she "does not like seeing the prime minister scolded by a foreign leader." Europe Pursues Own Solutions. While refusing military participation, Europe is addressing the crisis in its own way. Starmer said Britain is leading efforts to draft a plan to reopen the Strait of Hormuz; France is trying to form a "de-Americanized" international coalition to ensure strait security once the situation stabilizes, having discussed this with India and Gulf Arab states. French Finance Minister Bruno Le Maire stated clearly on the 18th that releasing strategic petroleum reserves is only a temporary measure, and "restoring oil flows is the only lasting solution." EU foreign policy chief Josep Borrell captured the new European mindset: "We anticipated unpredictable events; now we are calmer, staying calm and focused." This crisis may be accelerating Europe's pursuit of strategic autonomy.

Financial Briefs: First Attack on Iranian Energy Facilities, European Stocks Turn Lower. On Wednesday, Middle East hostilities spread to Iran's energy heartland. Attacks on Iran's South Pars gas field marked the first damage to energy infrastructure in the Gulf region since the war began. Tehran subsequently warned that neighboring energy facilities could be next. Oil prices surged, with Brent crude futures up 4.75% to $108.33 per barrel. Hit by this shock, European stocks ended a two-day rally. The pan-European STOXX 600 index, which had been up 0.67% intraday, reversed course to close down 0.70% at 598.25 points. Pepperstone strategist Chris Brown noted a prior "optimism bias" expecting policy shifts from the Trump administration, but this attack broke the tacit understanding that energy facilities were "off-limits," reigniting geopolitical risk awareness. Sector Divergence, Banks Sole Gainer: The consumer staples sector fell 2.72%, and healthcare dropped 2%, being the main drags. Bank stocks bucked the trend, rising 1.22% for a third consecutive day, showing funds seeking safety while still betting on interest rate prospects. Central Bank Signals Watched, Individual Stocks Shine: Markets focused on Fed Chair Powell's remarks and upcoming comments from ECB President Lagarde this week, seeking clues on the rate path. Analysis suggests both will strive to maintain policy flexibility under current circumstances. Among individual stocks, technical distributor Diploma surged 17.79% to a record high after raising its FY2026 guidance. Computer peripherals maker Logitech fell over 6% after a UBS downgrade.

Geopolitical Conflict: First Attack on Iranian Energy Facilities, Gulf War Escalates Significantly. On Wednesday, the Middle East conflict saw a major escalation. Iran's massive Pars gas field was attacked—the first damage to Iranian energy infrastructure in the Gulf since the U.S.-Israel war began. Tehran subsequently made good on prior threats, launching missile attacks on Qatar's energy hub, Ras Laffan Industrial City, causing "extensive damage"; simultaneously firing four ballistic missiles at the Saudi capital Riyadh and launching drone attacks on a gas facility in the country's east, both intercepted by Saudi defenses. The Pars field is the Iranian portion of the world's largest gas field, shared with Qatar across the Gulf. Israeli media widely reported the attack was carried out by Israel with U.S. acquiescence, but neither country officially claimed responsibility. Qatar, a close U.S. ally and host to the largest U.S. military base in the region, blamed Israel, calling the attack "dangerous and irresponsible"; the UAE also condemned it. Energy Markets Volatile, U.S. Faces Oil Price Pressure. The escalation heightened risks of global energy supply disruptions, with Brent crude futures rising about 5% to above $108 per barrel. U.S. diesel prices surpassed $5 per gallon for the first time since the 2022 inflation surge. U.S. February producer prices had already hit a seven-month high; war-driven oil price increases will further exacerbate inflation pressures. Vice President J.D. Vance said the Trump administration would announce "multiple measures" within 24-48 hours to address rising oil prices. Iranian Officials Targeted, Power Structure Tested. Israeli Defense Minister Yoav Gallant declared "in Iran, no one is immune." Following the death of Iranian Security Chief Ali Larijani in an attack on Tuesday, Intelligence Minister Esmail Khatib was also killed on Wednesday. Prime Minister Netanyahu authorized the military to "act against any Iranian official presenting an opportunity without requiring additional approval." Larijani's death particularly shook Tehran. As a power broker with both religious legitimacy and deep IRGC connections, his departure further fragments Iran's decision-making system. Analysts note the pool of talent capable of handling both war and governance challenges is shrinking; the regime may not be paralyzed but has lost a cautious senior figure at a dangerous time. The power center may shift further toward security agencies and Parliament Speaker Mohammad Bagher Ghalibaf. Lebanon Conflict Rages, Beirut Hit by Heavy Airstrikes. Israeli forces struck central Beirut, destroying an apartment building in one of the Lebanese capital's most intense airstrikes in decades. Israel has more than doubled its troops along the Lebanon border, searching houses in southern villages for Hezbollah weapons. Nearly 1,000 Lebanese have been killed and 800,000 displaced since Hezbollah joined the war on March 2. Russia-Ukraine Frontline Advances, Ukrainian Drones Strike Deep in Russia. Russia's Defense Ministry said its forces control the villages of Sopych in Sumy Oblast and Karelinky in Donetsk Oblast, continuing advances toward the strategic city of Sloviansk. Ukraine's General Staff announced attacks on two Russian aircraft factories in Ulyanovsk and Novgorod regions, damaging Il-76 military transport planes among others. Ukraine stated such strikes aim to degrade Russia's ability to restore and maintain combat aircraft.

Technical Analysis:

Short-Term EUR/USD Price Action Range Outlook: 1.1500 - 1.1450

Technical Indicator Summary:

During Wednesday's trading session, ahead of the Fed and ECB rate decisions, the euro exhibited typical "liquidity-compressed oscillation," consolidating narrowly within the existing 1.1550-1.1490 range. However, following the Fed's expected decision to hold rates steady early Thursday, its mention of Middle East uncertainty, upwardly revised inflation forecasts, and overall hawkish tone boosted the U.S. dollar, causing the euro to breach the 1.1500 support level and fall further towards the 1.1450 low area. Market focus has now shifted to the upcoming ECB rate decision and monetary policy press conference. For the euro, Middle East conflict-driven oil price increases have completely reversed market expectations for ECB rate cuts. The ECB is highly likely to maintain current rates this week, shifting its policy path from accommodative to neutral-tight. Vanguard economist Josefina Rodriguez stated it's premature for the ECB to signal a policy adjustment, noting it depends on the shock's magnitude and duration. The firm maintains its baseline expectation for unchanged rates until end-2026 but has removed the previous dovish bias, eliminating implied further easing space in favor of facing more persistent inflation pressures. LSEG data shows a near 100% probability the ECB holds its main refinancing rate at 3.65% and deposit rate at 3.25%. However, markets are pricing 44 bps of cumulative hikes in 2026, a significant upward revision reflecting energy shock impact on inflation expectations. This corresponds to 1-2 hikes of 25 bps each, potentially pushing the peak rate to 4.00%-4.25%, indicating investor concerns about shock persistence, inflation de-anchoring, and ECB credibility. Middle East conflicts causing sharp oil price rises are the major uncertainty for Eurozone inflation. Rodriguez noted the spike's magnitude and duration will dictate if the ECB shifts from "wait-and-see" to "re-tightening." A temporary shock might cause only transitory inflation, allowing a data-dependent path; persistent high energy costs transmitting to core inflation could force hikes in 2026 to anchor expectations. The ECB has recently emphasized "close monitoring" of supply-side risks while reiterating its dual mandate. However, inflation risks above 2% have significantly cooled easing expectations. Previous tail risks of 2026 cuts or negative rates are now eliminated. Although the Eurozone faces growth slowdown pressures (weak manufacturing, slow consumption), labor market resilience and wage growth support stubborn core inflation, limiting easing room. The meeting's focus will be on ECB President Lagarde's press conference and updated economic projections. If shock persistence is confirmed, market hike expectations could strengthen, potentially supporting the euro and pressuring risk assets. Conversely, if oil prices fall or inflation moderates, the easing door could reopen. The ECB's path is highly dependent on geopolitics/energy, requiring investors to track Brent crude, Eurozone HICP, and ECB guidance closely. For the USD, the Fed paused as expected for the second consecutive meeting, with dissenters halved to one. Trump-appointed Governor Miran continued advocating for a 25 bps cut. The statement added wording on Middle East uncertainty, and changed the unemployment rate description from "showing some signs of leveling off" to "has changed little." Median rate projections were mostly unchanged, signaling one cut expected this year and next, with the long-run rate raised to 3.1%. The dot plot showed seven officials project no cut this year, twelve project at least one 25 bps cut (including one projecting four cuts), and one projects a hike next year. The economic outlook raised GDP growth for this year and beyond, lowered next year's unemployment rate, and raised inflation forecasts for this year and next to 2.7% and 2.2% respectively. Aside from the Middle East impact, the statement saw few major changes. MUFG's George Goncalves called the statement "neutral," with tweaks "avoiding specific signals while conveying vigilance regarding Middle East conflict-induced growth shocks and inflation spillovers." Bloomberg Intelligence's Ira Jersey noted the upward inflation revision in the outlook was more notable than the statement's Middle East uncertainty mention, showing greater focus on current oil-related inflation versus next year's. Thus, the outlook incorporates a step-up in inflation. Veteran Fed reporter Nick Timiraos noted the Fed held rates as "the cloud of war in Iran hangs over the outlook," with a "new oil shock threatening to prolong the Fed's multi-year fight against inflation" ahead of the chair transition. Powell stated at the press conference that rate cuts won't happen without further inflation improvement, and "the next move could be a hike" has been discussed. He said the Iran war's economic impact is uncertain, inflation reduction progress has stalled, with tariffs and oil prices creating叠加 pressure, gradually transmitting to core inflation; goods disinflation might wait until mid-year. He also said macro data shows no AI contribution yet, potentially pushing up the neutral rate short-term. He confirmed he won't leave during the investigation and would serve as acting chair if a successor isn't confirmed to preserve Fed independence. On employment, Powell said job gains have moderated, largely reflecting lower labor supply growth due to reduced immigration and participation, alongside weaker demand. Other indicators like job openings, layoffs, hiring, and wages changed little recently. The SEP median unemployment is 4.4% at year-end, declining slightly after. On inflation, Powell said inflation is down from mid-2022 peaks but remains elevated above 2%. February PCE was 2.8% headline, 3.3% core. High readings partly reflect goods inflation from tariffs. Near-term inflation expectations rose recently, possibly due to oil price effects, but long-term expectations remain anchored near 2%. Median inflation projections are 2.7% for this year, 2.2% for next, both slightly above December's. Powell noted Middle East impacts are uncertain; energy price rises will boost headline inflation short-term, but the economic effect's scope/duration is unclear. In the SEP, FOMC participants provided their appropriate rate paths. The median is 3.4% at end-2026, 3.1% at end-2027, basically unchanged from December. Powell said these are uncertain individual forecasts, not a committee plan. Policy isn't preset; decisions are meeting-by-meeting based on data. In the Q&A, Powell said a series of shocks interrupted prior inflation-fighting progress. He stressed no cuts without inflation improvement. He said rates are near the restrictive/non-restrictive threshold, and maintaining mild restrictiveness is important. The Fed faces a difficult balance of risks. He said a hike as the next move has been discussed, but most officials don't see it as the base case. On his tenure, Powell confirmed he won't leave during the investigation; if no successor is confirmed, he'll serve as acting chair post-term to ensure independence.

Technical indicators show on the 4-hour chart, EUR/USD is influenced by a "pullback from highs - testing lower band" pattern. The 4-hour RSI near 40 (weakness zone edge) indicates current weak price action aligns with bearish momentum dominance, suggesting the market prefers reducing high positioning and volatility pressure before reallocating, entering a "range consolidation - recalibration" window. However, although bullish recovery resilience remains, the Bollinger Bands maintain a downward opening with descending midline and channel slope, depicting ongoing technical pressure. Until the upper band and key resistance are breached, bullish consensus lacks strong momentum support. Meanwhile, although the MACD histogram is narrowing in negative territory, it remains in bearish area, reflecting slowing downward momentum but also warning of potential renewed bearish dominance if it expands negatively again. Conversely, if MACD can test above zero and expand positively, momentum/volume resonance could provide a base for a genuine technical rebound. The Bollinger Band upper edge is currently near 1.1565, acting as dynamic resistance. The midline near 1.1495 is the core pivot for bull/bear strength. The lower band near 1.1420 provides dynamic support. A successful break above the upper band resistance is needed to inject new momentum for bullish recovery and price回升 consensus. Overall, composite technical indicators reflect negative momentum bias, depicting a shift from "bullish repair" to "neutral-bearish" technical picture, consistent with "post-squeeze price recalibration" characteristics. Therefore, before key levels are broken, subsequent structure favors mild technical rebounds; but if the upper band is repeatedly tested without volume support to hold, the risk of breaking the lower band increases. Technically, on the 4-hour chart, the current price structure and the Bollinger Band midline near 1.1500 form a near-term static-dynamic resistance confluence. For bulls to maintain a recovery posture, consolidation above the 1.1500 area is needed, followed by momentum/volume resonance for a second push upward, potentially opening upside towards 1.1540 upon breaking this resistance. However, failure to hold above 1.1500 signals continued risk of bearish dominance and extended declines after corrective bounces. From a risk perspective, the 1.1450 area constitutes the near-term bottom support defense zone on the 4-hour chart. A break below this area could intensify bearish momentum, risking a drop towards 1.1410. In summary, the Fed's hawkish tone and raised inflation forecasts are core阻力压制 the euro's recovery. Technically, having reached recent highs, profit-taking is unsurprising without further "fundamental confirmation." If declines continue with significant volatility, it may indicate rising risk pricing of the macro narrative. Additionally, the euro faced significant resistance near 1.1800, a key level since the drop from 1.2080. Failure to break it convincingly easily triggers selling pressure. Thus, technical risks suggest bull defense needs to hold the 1.1450 area to provide potential recovery momentum. A breakdown there risks a fall towards 1.1410. For a stronger recovery, consolidation above 1.1500 with secondary momentum/volume resonance is needed to potentially target 1.1540.

Short-Term EUR/USD Price Action Path Reference: Upside: 1.1500 - 1.1540 Downside: 1.1450 - 1.1410 Proper capital (position) planning, risk control (stop-loss), and maintaining personal trading "discipline" are paramount. Remember, money isn't made in a day, but can be lost in one.

Note⚠️: The above suggestions are for reference only. Investing carries risks; proceed with caution.