EUR/USD Forecast: Bulls take control amid the US banking crisis

EUR/USD Current Price: 1.0688

• The collapse of the Silicon Valley Bank behind financial turmoil on Monday.
• Data-packed week will have central banks’ decisions under scrutiny.
• EUR/USD is technically bullish, needs to clear a critical resistance level at 1.0745.

The EUR/USD pair extended last week’s rally to 1.0736 on Monday but retreated from the level mid-European session, now trading around the 1.0690 level. The US Dollar fell following the release of the United States Nonfarm Payrolls (NFP) report last Friday and news that the Silicon Valley Bank (SVB) collapsed. Both are directly linked to the US Federal Reserve (Fed) and the monetary policies adopted due to the coronavirus pandemic. Massive liquidity in the first year was followed by aggressive tightening in early 2022, with the US interest rate benchmark jumping from 0% to 5% in less than a year.

Government bonds lost value, and borrowing costs increased, causing a capital crisis to SVB, which announced last Wednesday a plan to raise $2 billion. As a result, banks’ stocks entered a sell-off spiral that continues this week, spreading like wildfire to their overseas counterparts. US  authorities launched emergency measures on Sunday to avoid collateral damage in the banking system, while President Joe Biden addressed the nation on the matter ahead of Wall Street’s opening. Financial markets are now reassessing Federal Reserve’s future monetary policy decisions as the banking crisis has become a new and relevant factor.

Data-wise, the day will be quiet, although the week will be pretty busy. The United States will publish the February Consumer Price Index (CPI) on Tuesday, while the European Central Bank (ECB) will have a monetary policy meeting on Thursday. Other relevant figures will be out throughout the week, including US Retail Sales and the Producer Price Index (PPI).

EUR/USD short-term technical outlook

The EUR/USD pair gapped higher at the weekly opening but filled the gap during London trading hours. It currently holds on to modest gains compared to Friday’s close. Technical readings in the daily chart support a bullish continuation, although the pair topped around a critical resistance level, 1.0745, the 61.8% Fibonacci retracement of the 2022 yearly slump. Still, EUR/USD is currently developing above a flat 20 Simple Moving Average (SMA), while the 100 SMA heads firmly north below it. Additionally, technical indicators picked up bullish momentum and are crossing their midlines into positive territory.  

In the near term, and according to the 4-hour chart, buyers seem to be losing steam. The pair briefly traded above a mildly bearish 200 SMA but is back below it. The 20 SMA maintains its upward slope, providing dynamic support at around 1.0600. Finally, technical indicators retreat from overbought territory, still holding well above their midlines.

Support levels: 1.0650 1.0600 1.0565

Resistance levels: 1.0700 1.0745 1.0790

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