EUR/USD climbs above 1.0700 on risk-on mood, soft US Dollar

EUR/USD extends its rally to four consecutive days, spurred by an improvement in market sentiment after a two-week turbulence in the financial markets. Woes linked to the banking system crisis eased after UBS took over Credit Suisse, and US banks provided aid to First Republic Bank. At the time of writing, the EUR/USD is trading at 1.0774 after hitting a low of 1.0703.

EUR/USD advances amidst the lack of fresh catalyst, soft USD

Wall Street extends its recovery to two consecutive days, with the major stock indices gaining between 0.51% and 0.96%. Global authorities stepping in to reassure that the crisis would not blow up and trigger another financial crisis increased the appetite for risk-perceived assets. The US Dollar (USD), a safe-haven play, continues to drop, as shown by the US Dollar Index (DXY). The DXY is down 0.05%, at 103.253.

The EUR/USD continued to rally to a five-week high of 1.0788 but fell shy of testing the 1.0800 mark. European Central Bank (ECB) policymakers have been crossing newswires, mainly discussing the Eurozone’s (EU) banking system and liquidity conditions amidst a period of higher interest rates.

US data-wise, the economic docket revealed that Existing Home Sales exceeded estimates in February, due to falling mortgage rates, after dropping for 12 straight months, evidence that the housing market could be stabilizing.

Meanwhile, traders focus shifted to the FOMC’s monetary policy decision. The Fed has the challenge of providing stable prices and financial stability. Given that inflation stays at three times the Fed’s target, the Fed could take a page of the Bank of England’s (BoE) blueprint for handling financial stability.

Last year, the BoE had to step up and provide liquidity to calm the markets. Yet the BoE tightened monetary policy in November and hiked rates by 75 bps. Therefore, if the Federal Reserve follows that path and delivers a hawkish hike, the EUR/USD might reverse course and erase some of the last four days’ gains below 1.0700.

EUR/USD Technical analysis

The EUR/USD formed a triple bottom at the daily chart. Since then, the shared currency (EUR) rallied above the March 15 high of 1.0759 and validated the pattern. Therefore, the EUR/USD initial target profit would be 1.1000, but the EUR/USD needs to hurdle some resistance levels on its way north.

The first resistance would be 1.0800, followed by the 1.0900 figure. Once cleared, the next stop would be the February 3 daily high at 1.0940, followed by the 1.1000 mark.