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      EURUSD: A Sharp Drop in European Banking Stocks Led by Credit Suisse Could Continue to Push It Down

      Forex MarketBanking Crisis in Europe and America
      Summary:

      The European Central Bank (ECB) will decide on monetary policy on Thursday. Until a few days ago, the market was confident that the ECB would raise interest rates by 50 basis points. After all, this is exactly what ECB President Lagarde and several other members strongly hinted at. But the situation has changed dramatically in recent days. The sharp fall in European banking stocks led by Credit Suisse seems to have triggered risk aversion, which has allowed the USD to gather strength and put the EUR under heavy bearish pressure.

      Sell EURUSD
      End Time
      CLOSED

      1.06300

      ENTRY PRICE

      1.04450

      TGT PRICE

      1.07600

      SL PRICE

      1.08370 +0.00411 +0.38%

      353

      Points

      Profit

      1.04450

      TGT PRICE

      1.05947

      CLOSING

      1.06300

      ENTRY PRICE

      1.07600

      SL PRICE

      Fundamentals

      Investors now expect only a 25-basis-point increase by the end of Thursday's European Central Bank meeting, amid turmoil in bond markets caused by the collapse of Silicon Valley Bank. They assessed the possibility of raising interest rates by 50 basis points. For the terminal rate, they now expect the benchmark deposit rate to peak at 3.40%, about 80 basis points lower than a week ago.
      With regard to the recent crisis in the U.S. banking sector, it is absolutely worthwhile for ECB members to discuss the possibility of raising interest rates by 25 basis points. Some doves in the ECB will no doubt argue that more caution is needed. However, hawkish members of the Governing Council, including European Central Bank President Lagarde, may argue that the risk of contagion is low and that the U.S. government's swift action over the weekend means that the likelihood of more small banks failing is low. The latter does not want the ECB to lag further behind in the fight against inflation.
      Just last week, Lagarde said it was "very, very likely" to raise interest rates by 50 basis points. She added, "I can't think of a situation like that unless it's very extreme, it won't happen."
      Although some hawks in the Governing Council of the ECB will undoubtedly continue to push for a sharp interest rate hike due to high inflation, doves may strongly oppose it given the collapse of two U.S. banks, which has increased financial stability. In other words, we believe that the risk is still biased toward raising interest rates by 50 basis points. Stronger-than-expected inflation data may overshadow concerns about financial stability, which may lead to the ECB's disappointment at the sharp repricing of policy interest rates by the market.
      Statistically speaking, the latest eurozone inflation data for February showed a little slowdown. Overall CPI fell slightly to 8.5% per annum but was still higher than expected to slow to 8.3%. Meanwhile, the core CPI accelerated from 5.3% to an all-time high of 5.6%. The fact that core inflation, the ECB's main concern, has risen further suggests that further policy tightening is needed.
      Given the increased risk of financial stability in the U.S. and a significant repricing of the yields on U.S. Treasury Securities, the EURUSD is likely to react positively to any surprise hawks at the ECB. A 50-basis-point increase should therefore push the EURUSD higher, while a 25-basis-point increase could push the EURUSD back to its recent bottom or even lower.
      EURUSD: A Sharp Drop in European Banking Stocks Led by Credit Suisse Could Continue to Push It Down_1

      Technical Analysis

      However, things have turned upside down. The sharp drop in European banking stocks led by Credit Suisse has triggered a risk aversion, allowing the USD to gather strength, causing the EURUSD to fall below its previous low of 1.0525 and face heavy bearish pressure. (The probability of a 50-basis-point increase in interest rates is expected to be significantly reduced because of this event.) As a result, a clear technological peak appears to be taking shape.
      Today, the EURUSD's closing price is below the 100-day SMA, which could keep bears pushing prices down to 1.0445. Taken together, these indicators suggest that the EUR will fall further in the future. While the short-term spot price may continue to decline after testing to the mid-range of 1.0600. It is recommended to go short at the highs.

      Trading Recommendations

      Trading direction: Short
      Entry price: 1.0630
      Target price: 1.0445
      Stop loss: 1.0760
      Deadline: 2022-03-29 23:55:00
      Support: 1.0525, 1.0481, 1.0445
      Resistance: 1.0603, 1.0650, 1.0760
      Risk Warnings and Investment Disclaimers
      You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or signal, or any other product is suitable for you based on your investment objectives and financial situation.

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      Eva Chen

      Analyst

      Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.

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