EUR/USD Forecast: Cautious optimism backs the Euro

EUR/USD Current Price: 1.0703

• Discouraging European data passed unnoticed as the focus remains on the global financial situation.
• Market players await the United States Federal Reserve’s decision on monetary policy.
• EUR/USD has room to extend its advance, faces strong resistance around 1.0745.

Financial markets started the week with cautious optimism amid weekend news indicating the  UBS Group AG would buy Credit Suisse Group AG by $3.23 billion. The Swiss National Bank stated on Sunday the rescue would “secure financial stability and protect the Swiss economy.”  EUR/USD gapped higher at the weekly opening but fell towards 1.0630 early in the European session. It later resumed its advance and currently trades just above the 1.0700 threshold.

Further aiding the market sentiment, the United States Federal Reserve (Fed) announced that it would offer daily swaps to its major counterparts to ensure they have enough liquidity to continue operations. The American central bank will announce its decision on monetary policy next Wednesday, and market participants doubt their former conviction the Fed will proceed with an aggressive 50 bps hike but instead go on with a modest 25 bps hike or even stay pat. The central bank will also release fresh economic projections.

Data-wise, Germany published the February Producer Price Index (PPI), which rose at an annualized pace of 15.8%, higher than the 12.4% expected. The monthly reading slid by 0.3%, higher than the 0.5% decline anticipated by investors. At the same time, the Eurozone Trade Balance posted a deficit of €-11.3 billion, better than expected. The United States will not release relevant macroeconomic figures on Monday.

EUR/USD short-term technical outlook

The EUR/USD pair pressures its daily high in the 1.0710 region ahead of the US opening, and the daily chart shows that the risk of a bullish extension increased. The 20 Simple Moving Average (SMA) lacks directional strength but provides dynamic support around the aforementioned intraday low. At the same time, the 100 SMA gains upward traction below the shorter one and above the 200 SMA. Finally, technical indicators head firmly north within positive levels, supporting a continued advance. The pair faces strong resistance at around 1.0745, the  61.8% retracement of the 2022 yearly decline.

In the near term, and according to the 4-hour chart, the chances are also on the bulls’ side. The pair is currently advancing above all its moving averages, which offer neutral-to-bearish slopes. On the other hand, technical indicators picked up momentum and advance well above their midlines, supporting higher highs in the upcoming sessions.

Support levels: 1.0685 1.0640 1.0600

Resistance levels: 1.0745 1.0790 1.0825  

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