- Banking news helped risk sentiment on Monday; however, worries persist.
- Euro supported by ECB rate hike expectations.
- EUR/USD defends key short-term support, turns to the upside but shows lack of strength.
The EUR/USD rose on Monday toward the 1.0800 area, recovering some of Friday’s slide, supported by an improvement in market sentiment, amid easing concerns on the banking sector. Deutsche Bank shares recovered ground, but the German lender is still in the eye of investors. Concerns about the health of the banking sector in Europe and in the US linger. Late on Sunday, the Federal Deposit Insurance Corporation (FDIC) announced First Citizens is buying all of Silicon Valley Bank’s deposits, loans and branches.
Regarding economic data, inflation will take center stage this week. On Thursday, Spain, France and Germany will release their estimates of March inflation, and on Friday, the US Core Personal Consumption Expenditure Index is due. Until those figures, market participants will focus on risk perception.
Data released on Monday showed the German IFO Business Climate Index rose to 93.3 in March from 91.1, surpassing expectations. In the US, the Dallas Fed Manufacturing Business Index fell to -15.7 in March against the market consensus of -10.9. On Tuesday, US CB Consumer Confidence and home price data are due.
The Euro remains supported by expectations that the European Central Bank (ECB) will raise interest rates again in May. There will be plenty of ECB speakers over the following days amid the ongoing internal debate about what to do next.
EUR/USD short-term technical outlook
The EUR/USD held well above the 20-period Simple Moving Average (SMA), currently at 1.0670 on the daily chart. Also, above 1.0720/40, a key support area (Fibonacci retracement of recent rally, 55-day SMA and horizontal support), keeping the risk tilted to the upside. However, gains seem limited while unable to consolidate above 1.0900. A slide below 1.0620 would negate the positive outlook.
Ahead of the Asian session, the 4-hour chart shows EUR/USD moving with a bullish bias, near 1.0800 but without much conviction. The outlook looks set for more consolidation ahead, probably in a broader price range. A flat 20-period SMA awaits at 1.0815, which could prove to be a strong barrier, and then emerges 1.0860. A failure to recover 1.0800 would favor a test of 1.0775 and then 1.0750, which should limit the downside.
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