The exchange rate of the EUR/USD currency pair got rid of a large part of its previous gains in the last session of last week’s trading. New sales of global bank stocks and related speculations led to analysts being divided in their opinions about the short-term expectations of the single European currency. On Friday, the EUR/USD pair retreated towards the 1.0712 support level, and its gains in the same week reached the 1.0930 resistance level, the highest for the currency pair in nearly two months.
The euro remained one of the best performing currencies in the G10 basket for the week on Friday even after suffering last minute losses against most of its peers including those in the broader G20 group of currencies amid another flare up in banking stocks. Friday’s price action came as financial markets turned their attention to a major German investment bank after barely a week of speculation about Credit Suisse’s future prompted the Swiss government to force a merger with national rival and global rival UBS.
It also comes on the heels of the failure of the Silicon Valley Bank in the US, which led to the failure or distress of other companies last week while prompting investors, traders and analysts to ask questions about the stability and viability of other institutions in both North America and Europe.
According to the analysts, “I would just argue that there are problems in the US banking sector as well and that Fed pricing could keep the euro more supportive than the sentiment this morning would have you believe. And US fiscal policy may be lacking, leaving more for the Fed in terms of monetary policy to do.” And “This is why we are still long EUR/USD here (we are looking for 1.11 by the end of Q2) and we don’t see the price action this morning as the start of a new trend.”
The sell-off in bank stocks led to fresh losses in equity markets, declines across commodities, and a rally in government bonds on Friday, all of which helped push what appeared to be a “safe haven” offer for the US dollar at the expense of most other currencies. But while Nomura’s technical analysis team argues that the euro should benefit from a less “hawkish” interest rate stance by the Fed and the possibility that the European Central Bank (ECB) will continue to raise borrowing costs, others have different views on the issue.
Stephen Gallo, global forex analyst at BMO, wrote: “There is a case for the euro to hold the risk discount based on this macro problem, and that means sustained gains in EURUSD above 1.08 will continue to be a struggle in the near term.” The analyst added, “I would remain a seller of EUR/USD in the 1.08-1.10 range, with a clean break at 1.10 likely to require a major shift in the narrative. The nature of the euro undermines the financial pressure in the region the argument that the euro against the dollar is a buy based on the interest rate convergence between the euro and the dollar.”
The analyst argued on Friday that risk aversion in global markets is likely to dissipate first until EUR/USD benefits from a more favorable transatlantic interest rate outlook and warned of persistent stability risks fading away into the background.
- On the near term and according to the performance of the hourly chart, it appears that the EUR/USD is trading within a bearish channel formation.
- This indicates a significant short-term bearish bias in market sentiment. T
- herefore, the bears will target extended declines around 1.0800 or lower at 1.0768.
- On the other hand, the bulls will be looking for a bounce around 1.0865 or higher at 1.0895 resistance.
On the long term, and according to the performance on the daily chart, it appears that the EUR/USD is trading within a sharply bullish channel formation. This indicates a strong long-term bullish bias in market sentiment. Therefore, the bulls will target long-term gains around 1.0933 or higher at the resistance at 1.1028. On the other hand, bears will be looking to pounce on pullbacks around 1.739 or below at 1.0647 support.
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