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EURUSD Remains Firm, with the ECB To Come Under Pressure Due to Banking Crisis

March 16, 2023
by Joseph Jeffriess, Market Analyst

It’s hard to look past the recent banking crisis that has rocked equity markets all week. Credit Suisse was the latest to hit the headlines yesterday, and it certainly hit hard. Risk currencies that have stood up all right felt seller force, and we watched the Japanese Yen cause all types of carnage to the EUR, GBP, and AUD.

The EUR is our focus today, and so is today’s ECB meeting. Some talk emerged that due to the banking crisis, we might see central banks pull back from hikes, but for now, that’s yet to be confirmed. Was it really rate hikes that caused this or poor risk management at the banks in focus? Based on what I’ve read, I’m leaning towards the latter.

Yes, there’s plenty of pressure on the banking sector right now, but does that warrant a policy change from central banks? Has the underlying issue changed? EU inflation still sits at 8.50%. Last year that number was 5.90%. Yes, it’s dropped slightly from last month’s 8.60%, but it’s still there, and it’s going to be very interesting to hear from the ECB later today via the policy statement and press conference. Rates are still expected to be increased to 3.50% today, a 50-point rise.

Could we see a 25 hike to help calm nerves? Talk presented around this case, but we feel the ECB may stick with the plan. Let’s take a look at the EURUSD. Price continues to hold above 1.0535 support. Yesterday’s rejection reconfirmed this level, and so far today, buyers continue to trade above it.

A lot comes down to the ECB today. We seriously doubt there will be a larger-than-expected hike, so it’s about if we see 50 points or a surprise 25 points. 25 should hit the EURUSD and break support. A hold should continue to support that level, but traders will be looking at the statement for future direction and if the recent issues have impacted the current path.

ECB rates decision and policy statement will be released Friday at 12:15 am AEDT. The press conference will follow at 12:45 am.

EURUSD D1 Chart

All times are AEST.