The EUR/USD experienced wicked reversals last week which certainly tested the fortitude of traders and more risk events are likely in the coming days.
The EUR/USD closed the last week of trading near the 1.06640 mark, and the start of trading this past Monday began near the 1.06900 level. Traders participating in the EUR/USD know that is not the whole story, however. Swift price velocity was demonstrated most of the week and the coming days promise more hectic results as clarity and calm emotions remain in short supply.
A high of nearly 1.07600 was experienced in the early hours of Wednesday, but by the end of the trading day via technical charts, the weekly low was put in around the 1.05165 ratios. The behavioral sentiment is fragile and traders trying to get a feel for the markets via developing news are likely not feeling tranquil, considering they are hearing conflicting viewpoints and outlooks regarding the broad market nervousness.
As expected the European Central Bank delivered a rate hike of 0.50% in the middle of last week, but it is the U.S Federal Reserve that all eyes will be on the 22nd of March. Taking into consideration the violent reactions in the banking sector via corporate share values, the U.S. Federal Reserve has a very difficult decision to make.
While inflation remains high and a legitimate concern for the global central banks, the unappealing prospect of raising borrowing costs could further hamper the corporate banking sector. It has become a chicken and egg question regarding the prospect of raising the Federal Funds rate this week. If the Fed increases its borrowing costs by 0.25% it might help fight inflation, but it may also cause harm in the corporate banking area and make growth not only hard to achieve because lending will become harder, but potentially dangerous if already ‘wounded’ banks are then hit with additional equity selling making them vulnerable financially.
If the U.S. Fed raises its interest rate by 0.25% instead of pausing, this will certainly cause a reaction in the EUR/USD.
The Fed did not give much clarity in the past couple of days regarding its interest rate stance.
It is quite possible the U.S. Federal Reserve wants to see how the Credit Suisse crisis in Europe is handled. The Fed is also watching First Republic Bank which is being hit by selling and poor bond action in the U.S.
The speculative price range for EUR/USD is 1.05060 to 1.07150
Traders are encouraged to monitor financial news in the coming days. However, speculators are also advised to listen attentively and try to eliminate noise. Meaning that traders need to keep their emotions steady and not let loud words scare them. Caution will certainly be needed when trading this coming week and the EUR/USD will fluctuate depending on what is taking place.
If Credit Suisse bank is able to find a business deal with UBS this may help stabilize emotions in the banking sector momentarily. Yet, other concerns abound. If the U.S. Federal Reserve does increase its interest rate by a quarter of a point on the 22nd of March, this may have already been digested into the Forex mindset. It seems wildly impossible the Fed would increase by 0.50% this coming week considering what is going on in the global banking sector, but if the central bank were to undertake this move strong selling of the EUR/USD could ensue.
If the U.S. Fed chooses to pause its interest rate hikes this month and says it is taking a wait-and-see approach regarding the health of the financial markets this could cause the EUR/USD to climb. What the Fed will do this coming week is not known. There are certain to be interesting debates within the halls and offices of the Federal Reserve building in Washington this week. Forex traders should be braced for more volatile price action. Risk management and narrow targets using take-profit orders are highly encouraged for day traders who choose to participate in the EUR/USD this week.