US Banking Reforms Lift Treasury Yields, Limiting EUR/USD Gains

Key Takeaways

• U.S. Treasury yields rose as concerns about banking sector eased
• Rising government yields make U.S. Dollar more attractive asset
• Deutsche Bank shares recover after Friday sell-off prompted by jump in credit default swaps

Overview

The Euro is inching higher against the U.S. Dollar on Monday, but gains have been limited by a soaring greenback due to a number of moves by U.S. authorities and regulators to shore up holes in the domestic banking systems while trying to dampen worries over the global banking system. Gains are also being capped by a surge in U.S. Treasury yields.

At 11:25 GMT, the EUR/USD is trading at 1.0776, up 0.0016 or +0.15%. On Friday, the Invesco Currency Shares Euro Trust ETF (FXE) settled at $99.34, down $0.74 or -0.74%.

U.S. Treasury Yields Rise as Banking Sector Concerns Ease; Dollar Gains Momentum Weighing on Euro

On the bearish side, U.S. Treasury yields climbed on Monday as investors assessed the latest changes in the banking sector and concerns about its future eased slightly. Rising government yields tend to make the U.S. Dollar a more attractive asset.

Treasury yields jumped as investors considered fresh developments in the banking sector. Early on Monday, the U.S. Federal Deposit Insurance Corporation (FDIC) announced that First Citizens Bank & Trust Co. would purchase deposits and loans held by the now-collapsed Silicon Valley Bank.

Meanwhile, helping to underpin the Euro was a recovery in shares of Deutsche Bank shares, following Friday’s sell-off, which was prompted by a jump in its credit default swaps, and were last up in pre-market trading.

Daily EUR/USD Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower. A trade through 1.0930 will signal a resumption of the uptrend. A move through 1.0517 will change the main trend to down.

The minor trend is also up. The momentum shift was triggered by a confirmation of last Thursday’s closing price reversal top.

On the downside, support is a pair of 50% levels at 1.0723 and 1.0661. On the upside, the major resistance is a long-term 50% level at 1.0943.

Daily EUR/USD Technical Forecast

Trader reaction to 1.0775 is likely to determine the direction of the EUR/USD on Monday.

Bullish Scenario

A sustained move over 1.0775 will indicate the presence of buyers. The first upside target is a minor pivot at 1.0822. Overtaking this level will indicate the buying is getting stronger. This could create the upside momentum needed to challenge the minor top at 1.0930 and the long-term 50% level at 1.0943.

Bearish Scenario

A sustained move under 1.0775 will signal the presence of sellers. This could trigger a quick break into a minor pivot at 1.0723. A trade through this level could extend the selling into another long-term 50% level at 1.0661.

For a look at all of today’s economic events, check out our economic calendar.