The EUR/USD exchange rate spent six weeks consolidating within a narrow range but may try to breakout to the upside or downside after the US Federal Reserve’s interest rate decision on Wednesday and expected updates. During the last four trading sessions, the price of the euro currency pair against the US dollar, EUR/USD, attempted to rebound to the upside with gains that reached the resistance level of 1.0730, before settling around the level of 1.0700 at the time of writing the analysis, waiting for anything new.
The euro was sold off broadly at times last week after the fallout from recent bank failures in the US led to market speculation about the viability of some lenders on the continent and a fire in European banking stocks that has since culminated in the takeover of Credit Suisse by UBS. For her part, Christine Lagarde, President of the European Central Bank, said in a statement on Monday, “I welcome the swift action and decisions taken by the Swiss authorities. They are useful for restoring orderly market conditions and ensuring financial stability.”
The details of the merger were followed on Sunday by the announcement of coordinated measures among major central banks aimed at improving the availability of the US dollar in the global financial system, which may benefit the euro’s price against the dollar early in the new week’s trading. Commenting on this, Ulrich Leuchtmann, forex analyst at Commerzbank says: “Normally, a move should be negative in US dollars. The experience of 2008 has shown us that a lack of liquidity in US dollars outside the US can lead to a strong appreciation of the US dollar.”
The markets were concerned about the stability of small and medium banks as well as some of the larger companies due to the high cost of paying increasing interest on depositors’ balances at a time when profits are still being reaped from the low-interest loans made over the past decade or more.
These costs have been widely reported as contributions to the recent failures of the Silicon Valley bank and others, although facilities introduced by central banks since then have gone some way toward addressing the risks surrounding this. Holger Schmieding, chief economist at Berenberg, said: “The Swiss decision on Sunday to deal with Credit Suisse in one fell swoop highlights the swift and largely sensible policy responses on both sides of the Atlantic. We do not expect the authorities to mishandle the risks badly in the foreseeable future.”
The euro was bruised last week even after financial markets made sharp downward revisions to their interest rate expectations for the US Federal Reserve ahead of Wednesday’s decision, weighing on the dollar in the process. This could mean that the euro will benefit more than other currencies if global markets stabilize over the coming days, although a lot is also likely to depend on the new decision and forecasts announced by the Federal Reserve, as well as any feedback from European Central Bank (ECB) policymakers. )
- According to the performance on the daily chart below, the EUR/USD exchange rate is still in the stage of breaking the bearish trend.
- It may succeed in that if it moves towards the resistance levels 1.0810 and 1.0945, respectively.
- Stability below the support level of 1.0650 will be a continuation of the dominance of the bears in the direction.
The euro may be affected today by the announcement of the German ZEW index reading and the statements of the European Central Bank governor.
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