EUR/USD keeps making small gains and cuts back on its biggest daily loss since September 2022.
Policymakers at the ECB are likely to say that they are worried about inflation as a reason for the expected 50 bps rate hike. Forward guidance will be very important.
As the US bank problems are followed by the Credit Suisse problems, fears of a financial market crackdown like the one in 2008 could weigh on the Euro pair.
How the bond market moves, what the ECB says about future rate hikes, and how the economy is doing will be very important for the near future.
EUR/USD is getting bids up to 1.0600 as it recovers from its biggest daily loss in almost six months. This is happening before the Monetary Policy Meeting of the European Central Bank (ECB). But the major currency pair hasn’t done much in the last few hours because traders don’t believe the hawkish worries about the central bank of the old continent since the Credit Suisse crisis.
Reuters quoted a source who knew about the situation on Wednesday, Reuters said on Wednesday that policymakers at the European Central Bank (ECB) are likely to raise rates by 50 basis points (bps) on Thursday. The news also said, “Despite turmoil in the banking sector, policymakers expect inflation to stay too high in the Eurozone.” It also said that the Governing Council doesn’t want to hurt its credibility by dropping the 50 bps rate increase after saying many times that this was their plan.
It should be noted that the Saudi National Bank’s refusal to give Credit Suisse more money pushed up the key European bank’s Credit Default Swaps (CDS) and caused the crisis on Wednesday’s financial markets. The bad mood got even worse when people heard that the European Central Bank (ECB) had asked banks about their exposure to Credit Suisse. Credit Suisse is a G-SIB, which means it is important to the global financial system. The drama starts when Silicon Valley Bank (SVB) and Signature Bank fail.
But the news that Credit Suisse wants to borrow up to CHF50 billion from the Swiss National Bank (SNB) to improve liquidity got a lot of attention and gave EUR/USD bears a chance to catch their breath. In the same vein, news from anonymous sources that the US banks are less likely to be affected by the Credit Suisse mess could be true. Also, the emergency talks by the Bank of England (BoE) and rumours on the market that the Federal Reserve (Fed) and the European Central Bank (ECB) won’t react negatively right away during their monetary policy meetings seem to have calmed the fear of taking risks.
As a result of these plays, the S&P 500 Futures go up 0.40 percent during the day to make up for the losses from the day before. At the same time, the yields on US 10-year Treasury bonds stabilise around 3.48 percent, after dropping the most in four months on Wednesday. However, the coupons on two-year Treasury bonds stop falling around 3.94%, which is where they have been since September 2022.
In the future, EUR/USD traders will be most interested in how the ECB responds to the Credit Suisse crisis, since the bloc’s central bank will definitely raise rates by 50 basis points (bps). So, ECB President Christine Lagarde’s press conference will be more important, and even if she announces a rate hike, it could sink the EUR/USD pair if it raises doubts about future rate hikes and the state of the economy.
Technical analysis
Near 1.0550, the 100-day moving average and an upward trend line from early December 2022 meet. This seems like a tough spot for bears to break through.
ADDITIONAL IMPORTANT LEVELS
Source: Team CurrencyVeda
