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The recovery of the EUR/USD exchange rate in March was undermined last week. The single European currency could test gains of more than 1.08 in the coming days as concerns about the stability of the banking sector dissipate and focus returns to the European Central Bank’s interest rate outlook. At the beginning of this week’s trading, the euro/dollar price settled in a narrow range between 1.0745 and 1.0795, waiting for stronger incentives to move in one of the two directions.
Overall, the single European currency – the euro – traded to a six-week high above 1.09 against the dollar last week before financial markets began asking questions about the stability of a major German bank. This led to losses for risky assets, a corrective setback to the superiority of the euro’s exchange rates.
Commenting on the performance, Francesco Pessol, currency analyst at ING, said: “While our general view favors a rally in EUR/USD on the back of monetary policy divergence, last Friday he issued a warning not to jump to the conclusion that this turmoil The banker turns into an American-only story – hence a straight line and therefore EUR/USD is bullish.” The analyst added, “However, a move to the 1.10 resistance in the coming weeks is still a very tangible possibility. And for this week, a retest of the 1.0900 top would indeed be a very welcome sign for the EUR/USD bulls.”
The euro was selectively bought against other currencies, as German bank stocks rose along with the main equity index and rebounding markets elsewhere, helping the euro-dollar price enter the new week in full swing. For his part, Stephen Gallo, analyst in currency markets at BMO Capital Markets, says: “Apart from the sunshine, I think we are still in the aftershocks phase in the wake of the failure of US banks. That argues for a defensive FX stance heading into the second quarter.”
And “In EUR/USD, the rally should fade in the range of 1.08-1.10 in order for investors to pass the issues related to European financial stresses. And I would argue that we are not quite out of the woods yet in this regard: 1m EURUSD bid is 1.06.”
Opinions on the single European currency’s prospects differ markedly, however, European and US inflation figures due next Friday are likely to determine a lot about how EUR/USD is priced this week, which will refocus markets on the European Central Bank’s policy outlook once again. For his part, Joseph Capurso, Head of International Economics at the Commonwealth Bank of Australia, wrote: “Results from these economies usually take a surprise from the eurozone measure. A further acceleration in core inflation in March could keep further rate hikes from the ECB on the table. The next level of bullish resistance for EUR/USD is Long, away at 1.1185 (100% Fibo).
The consensus among economists sees inflation in the eurozone likely to fall from 8.5% to 7.5% for March on Friday, but they also look forward to the more important core inflation rate rising from 5.6% to 5.7%. It comes after the European Central Bank raised its forecast for economic growth earlier in March and raised the outlook for core inflation, which is believed to better reflect domestic inflation pressures by overlooking volatile food and energy prices.
While the ECB’s outlook for the continental economy improved this month, the bank gave no guidance on how far it might continue to raise interest rates due to the failure of the Silicon Valley bank and others earlier in March, which has since had spillover effects on the region.
- The EUR/USD price is upwardly inclined.
- Breaking the resistance 1.0865 will give the bulls enough momentum to catch up with the psychological resistance 1.1000.
- This moves the technical indicators towards strong overbought levels.
This will depend on the positive sentiments of investors towards the global concern about the future of the banking system, amid the continuation of global central banks in tightening their policies. On the other hand, and over the same period of time, breaking the support level at 1.0630, ending the current bullish expectations. The currency pair will be affected today by the release of the US Consumer Confidence reading.
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