EUR/USD bulls struggle above 1.0650 as yields propel US Dollar, ECB’s Lagarde, Fed in focus

EUR/USD prints mild gains around 1.0680 as the key week begins on a positive note. That said, the major currency pair prints a three-day uptrend amid early Monday morning in Europe as joint efforts from the major central banks to avoid a liquidity crunch join the UBS-Credit Suisse deal to favor the market’s risk profile, as well as underpin the recovery in the US Treasury bond yields and the US Dollar. It’s worth observing, however, that the hawkish comments from the European Central Bank (ECB) officials seem to defend the Euro buyers of late.

While reacting to the Swiss National Bank’s (SNB) efforts to defend Credit Suisse, European Central Bank (ECB) President Christine Lagarde said that the central bank hopes the Swiss-brokered rescue of Credit Suisse will restore calm in financial markets.

Before that, multiple European Central Bank (ECB) officials crossed wires on Friday to convince markets of the soundness of the bloc’s banks, as well as defend the ECB’s hawkish monetary policy stance. Firstly, Governing Council member Madis Muller said, “Banking uncertainty complicates communication,” while adding that the latest inflation forecasts assume more rate hikes. Following him was ECB Board member Francois Villeroy de Galhau who said that the French and European banks are 'very solid'.

Furthermore, ECB policymaker Peter Kazimir said that there is a need to continue with rate hikes while Governing Council Member Gediminas Šimkus backed the hawkish bias while saying, “The terminal rate hasn't been reached yet.”

On the other hand, the downbeat US Dollar data and Treasury bond yields propelled the EUR/USD previously. That said, US Consumer Confidence per the University of Michigan's (UoM) Consumer Confidence Index dropped to 63.4 for March versus 67.0 expected and prior. The details suggest that the year-ahead inflation expectations receded from 4.1% in February to 3.8%, the lowest reading since April 2021, while the 5-year counterpart dropped to 2.8% from 2.9% previous reading. Furthermore, US Industrial Production remained unchanged in February versus 0.2% expected and January's 0.3% (revised from 0%) expansion.

Elsewhere, the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, and Swiss National Bank are all up for announcing joint actions to provide more liquidity via standing US dollar liquidity swap line arrangements. Furthermore, Sky News reported the news of the UBS-Credit Suisse takeover on Sunday evening while stating that UBS will pay 3 billion Swiss francs (£2.6bn) to acquire Credit Suisse.

Against this backdrop, the S&P 500 Futures print mild gains while reversing the previous day’s pullback from a one-week high around 3,970 whereas the US benchmark Treasury bond yields recover. That said, the US 10-year Treasury bond yields rise six basis points (bps) to 3.49% while the two-year counterpart also adds five bps to print a 3.93% coupon at the latest. It’s worth noting that United States two-year Treasury bond yields marked the biggest weekly loss in three years while the 10-year counterpart dropped the most since early January.

Moving ahead, EUR/USD traders should pay attention to ECB President Lagarde’s speech for immediate directions. However, Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcement is this week’s crucial event as Fed’s 0.25% rate hike is already given. Also important are the preliminary readings of the March month PMIs. Above all, risk catalysts and the United States Treasury bond yields will be the key for Euro pair traders to watch for clear directions.

Technical analysis

A daily closing beyond the 50-DMA hurdle surrounding 1.0730 becomes necessary for the EUR/USD bull’s conviction. On the other hand, the major currency pair’s pullback remains elusive unless the quote stays beyond the 100-DMA, close to 1.0575 at the latest.