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28 Mar 2023

EUR/USD bulls eye the 1.09´s as risk appetite retruns

  • Risk appetite is returning and supporting the Euro.
  • EUR/USD bulls are climbing their way towards 1.09´s.

EUR/USD climbed to a five-day high at 1.0846 as euro zone government bond yields rose on Tuesday and after a deal backed by the US regulator for First Citizens BancShares to buy up Silicon Valley Bank helped alleviate concerns in the banking sector. At the time of writing, EUR/USD is trading at 1.0841 and is 0.4% higher having rallied from the day´s low of 1.0795.

The US Dollar fell against a basket of currencies for a second straight day on Tuesday with the DXY,  which measures the currency against six rivals, falling to a low of 102.41, not far now from the seven-week low of 101.91 hit last Thursday.

Last week, the Federal Reserve's Federal Open Market Committee raised interest rates by 25 basis points, as expected, but took a cautious stance due to the banking sector crisis at hand. Nonetheless, Fed Chair Jerome Powell kept the door open for further rate rises if necessary which stalled the drop in the US Dollar. 

´´We believe that markets are overestimating the Fed’s capacity to ease and so the dollar should eventually recover when expectations are repriced,´´ analysts at Brown Brothers Harriman argued. 

´´Fed officials continue to view the banking crisis as a regulatory failure.  If this turns out to be so, the impact on monetary policy is likely to end up being not too significant,´´ the analysts added. 

´´The next FOMC meeting is May 2-3 and WIRP suggests around 55% odds of 25 bp hike then.  After that, it’s all about the cuts.  Nearly two cuts by year-end are priced in.  While down from 4-5 cuts priced in during the height of the banking crisis earlier this month, even two cuts seems very unlikely.  In that regard, Powell said after the March 22 decision that Fed officials “just don’t see” any rate cuts this year.´´

EUR/USD technical analysis

Meanwhile, EUR/USD has broken out of the falling wedge resistance and is eyeing a run to test prior highs in the 1.09´s. However, a break of the micro trendline support will open the risk of a significant drop as illustrated above.

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