The EUR/USD packed plenty of volatility last week regarding its trading results, and it is likely the rollercoaster ride for the currency pair is not finished.
The EUR/USD touched a high of nearly 1.07010 on Friday but finished went into the weekend around the 1.06385 ratios. A low of nearly 1.05250 was produced this past Wednesday when U.S Federal Reserve Chairman Jerome Powell reiterated his rather hawkish view on interest rates being hiked in the coming months.
Countering the lows on Friday was a rather loud combination of slightly weaker than anticipated Average Hourly Earnings numbers from the U.S., and quite possibly bets being placed on long positions for the EUR/USD based on another reason. News broke late on Friday that Silicon Valley Bank in California had not only stumbled but that the financial institution was nearly insolvent. The potential of a bankrupt financial institution in the heart of California’s tech industry caused behavioral sentiment to go wild and caused bedlam in the broad markets, including Forex and the EUR/USD.
Last week delivered known risk events, followed by an unexpected financial development that rattled the markets. This coming week will likely be extremely volatile too, as the U.S. government decides how to deal with the large exposure because of the Silicon Valley Bank crisis, which will cause problems for many global companies. The notion that the U.S. Federal Reserve may have to become suddenly dovish regarding its monetary policy is something that some financial houses may be betting on because a global banking crisis is certainly not wanted.
Day traders will have to be very careful in the coming days with the EUR/USD. Technical charts will provide insights regarding volatility and where behavioral sentiment may react with the currency pair, but developing news could produce further surprises. If the U.S Treasury, for instance, gets involved in the Silicon Valley Bank affair this could cause market reactions that are positive or negative depending on what is done (or not done).
- The U.S. will release Consumer Price Index statistics in the middle of this week and the inflation numbers will certainly affect sentiment.
- The U.S. Federal Reserve will announce its interest rate decision on the 22nd of March, but because of the Silicon Valley Bank situation, the Fed may have to deliver some clarity in the coming days to calm financial institutions that are nervous.
The speculative price range for EUR/USD is 1.05200 to 1.07060
Last week’s rather volatile range in the EUR/USD may continue to be demonstrated in the coming days. Traders should be braced for the potential of heightened nervousness on Monday and Tuesday. It is likely the U.S government will comment on the Silicon Valley Bank crisis and try to calm markets.
However, if they essentially only speak about the banking crisis and exposure which could hurt financial institutions, without taking firm actions this could leave the EUR/USD and the broad Forex market in a state of flux. Traders should have all of their risk management tools ready to use this coming week. Having seen lows near the 1.05250 only a few days ago, traders should consider the potential that supports levels could once again prove vulnerable if the Federal Reserve remains hawkish and inflation data this coming Wednesday remains stubborn.
Traders who may be tempted to go long on the EUR/USD need to understand that they are wagering and be careful too. Developing news regarding U.S. government’s response to the Silicon Valley Bank fiasco will cause behavioral sentiment to be disrupted and the EUR/USD will respond. If the Fed gives a clue they will have to take into account the potential of ‘banking weakness’ this might mean they will have to be more dovish than they want to be in a week and a half regarding interest rate policy. If that were to happen, the EUR/USD could climb higher. However, there are no guarantees moving forward for day traders and financial houses, the broad marketplace is likely to produce nervous results this week.