On December 18, the last European Central Bank meeting of the year will occur. The formal outcomes of the December meeting are likely predetermined—the central bank will almost certainly maintain all monetary policy parameters as they are. However, this is by no means a "routine" meeting. The intrigue continues regarding the ECB's future actions, especially given the ongoing strengthening of the euro. The question of interest rate cuts has not been removed from the agenda—at least, in the context of the first half of 2026.

According to the baseline scenario, the ECB will remain in a wait-and-see position not only at the December meeting but also at the beginning of the next year, at least until March. However, market participants are anxiously watching the EUR/USD pair, which is currently trading around the 17-18 figures. If the upward momentum continues, "dovish" expectations regarding the ECB will rise significantly.

It is important to recall the July statement by ECB Vice President Luis de Guindos, who noted that an EUR/USD rate above the target of 1.20 "would create significant difficulties for the economy and affect the ECB's decision on interest rate cuts, as a strong euro makes European goods more expensive" (against the backdrop of an influx of cheap Chinese goods). At the time, evaluating the situation (which refers to July this year), he emphasized that he saw no reason for concern regarding the current EUR/USD rate.

Remarkably, in July, the EUR/USD pair was trading within the same range as it is now. However, it failed to reach the 20 figure—after updating the monthly high at 1.1830, the pair turned south and finished July at 1.1415. Guindos's comments lost their relevance and were forgotten, as the saying goes, "until the time comes."

Against the backdrop of a general weakening of the dollar, the pair hit a nearly three-month high on Tuesday, rising to 1.1805. After that, the market once again began discussing the ECB Vice President's warnings. Essentially, in July, he signaled a potential easing of monetary policy if the euro continued to strengthen. According to estimates from several analysts (including ING economists), further strengthening of the European currency by at least 5% could trigger a reduction in interest rates.

If the central bank's members express similar signals at the end of the December meeting, the EUR/USD pair will come under significant pressure.

However, there are also opposing—hawkish—forecasts in the market that carry considerable weight. The main argument is a recent statement by ECB board member Isabel Schnabel, indicating that the next step for the central bank could be an interest rate hike. Although she made several caveats (notably, that any potential tightening of monetary policy may not occur in the near future), this statement sounded like thunder in a clear sky. The market is now considering a rate hike, a scenario that had not previously been part of the discussion. Justifying her position, Schnabel pointed to the recovery of the eurozone economy, the expansion of fiscal policies, and the stagnation of core inflation.

Indeed, the European economy is showing weak yet positive growth, according to final third-quarter data. The quarterly figure was unexpectedly revised upward: it was initially reported that the eurozone economy grew by 0.2%, but final data shows that GDP increased by 0.3%. On a year-over-year basis, the figure remained at the initial level of 1.4%. Consumer spending in the eurozone rose by 0.2% quarter-on-quarter, gross fixed capital formation increased by 0.9%, and government spending rose by 0.7%. Imports grew by 1.3%, and exports increased by 0.7%.

It is also noteworthy to mention the rise in employment. For the third quarter, employment grew by 0.2% quarter-on-quarter (against a forecast of 0.1%), following a 0.1% increase in the previous quarter. On a year-over-year basis, the figure rose by 0.6%, after a 0.5% increase in the previous quarter.

As for inflation, it is difficult not to agree with Schnabel: the core consumer price index stagnated at 2.4%. The overall CPI has remained at 2.1% for two consecutive months (according to the final data for November).

Thus, on one side of the scale is the threat of a "strong euro," while on the other are fundamental factors that allow the ECB to not only maintain a wait-and-see stance but also consider raising interest rates.

In my opinion, the central bank will keep all monetary policy parameters unchanged and adopt a "moderately hawkish" rhetoric, emphasizing a wait-and-see stance. Such an outcome (the absence of "dovish hints") may be interpreted by traders as favorable for the euro, as there will be two options on the table: maintaining the status quo (the baseline scenario) and interest rate hikes (an acceptable option).

At this time, any trading positions on the EUR/USD pair are risky. And this is not only due to the ongoing intrigue regarding the outcomes of the December ECB meeting. Trader attention is also focused on the U.S. CPI, with the October figure to be revealed on Thursday, immediately after the results of the December meeting are announced. If inflation in the U.S. slows down (or at least meets expectations), and the ECB adopts a "moderately hawkish scenario," the EUR/USD pair will likely attempt to revisit the 18 figure area. Conversely, if the CPI accelerates and the ECB signals dovish tones, the pair will most likely return to the range of 1.1630 – 1.1690 (the middle line of Bollinger Bands—the upper boundary of the Kumo cloud on D1).

The intrigue remains, so it is advisable to maintain a wait-and-see position regarding the pair.