EUR/USD Edging Up Amid Cautious Reaction to UBS/Credit Suisse deal

Key Takeaways

• Euro shows positive trend against US dollar amidst UBS-Credit Suisse deal
• Goldman Sachs lowers Eurozone economic growth forecast due to banking stress
• ECB President Lagarde affirms fight against inflation despite market turbulence

Overview

Late Monday, the Euro is up against the U.S. Dollar as investors react cautiously to UBS’ purchase of Credit Suisse at a discounted price.

At 17:11 GMT, the EUR/USD pair is trading at 1.0722, up by 0.53%.

The acquisition of Credit Suisse for 3 billion Swiss Francs by UBS and the assumption of up to $5.4 billion in losses through a sudden merger arranged by Swiss authorities has stirred up investor uncertainty in the Forex market. It remains to be seen how this news will continue to impact the EUR/USD pair in the coming days.

Goldman Sachs Lowers Euro Zone Growth Forecast Amid Banking Stress

Meanwhile, Goldman Sachs has lowered its 2023 economic growth forecast for the Euro Zone, citing ongoing stress in the global banking system. This has made investors cautious regarding the European Central Bank (ECB) and its future moves.

However, ECB President Christine Lagarde has stated that market turbulence would not stand in the way of the ECB’s fight against inflation as it has different tools to deal with both issues.

The August 2023 ECB Euro short-term rate forward dropped to 3.0%, indicating an expected deposit rate peak of 3.1% by summer, while the November 2023 forward had risen above 4% before fears of a banking crisis started hurting markets on March 10.

The ECB deposit rate currently stands at 2.5%, and short-end euro area yields continue to fall as market expectations for rate hikes decrease.

Although some ECB policymakers advocate for more rate hikes, Germany’s two-year yield was down by 8 basis points, and Italy’s two-year yield dropped 15 bps, indicating low interest rate expectations.

Fed Meeting in Focus: Rate Hike Expected Amid Market Turbulence

Market attention will shift to the Federal Reserve policy meeting, with most analysts anticipating a 25 basis points hike. However, the success of this move will depend on the return of stability to financial markets, particularly for regional banks.

Daily EUR/USD Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.0760 will change the main trend to up. A move through 1.0483 will reaffirm the downtrend.

The nearest support is a pair of 50% levels at 1.0661 and 1.0639. The closest resistance is a 50% level at 1.0775.

Daily EUR/USD Technical Forecast

Trader reaction to 1.0661 and 1.0639 is likely to determine the direction of the EUR/USD into the close on Monday.

Bullish Scenario

A sustained move over 1.0661 will indicate the presence of buyers. If this generates enough upside momentum then look for a late session surge into 1.0760 – 1.0775.

Bearish Scenario

A sustained move under 1.0639 will signal the presence of sellers. The first downside target is a minor pivot at 1.0624. This is the last potential support before the support cluster at 1.0517 – 1.0483.