EURUSD: Will the US banking crisis spill over to Europe?

FOREX Fundamental analysis for EURUSD on March 23The Fed has raised the interest rate for the ninth time, but it has not become a factor in strengthening the dollar. EUR/USD went up strongly after the Fed's verdict, which shows that euro buyers have a strong disposition.Investors understand that the cycle of the rate increasing by the American regulator is in its final stage, especially amid banking crisis, the reason of which was the tightening of the Fed's monetary policy.Moreover, during the press-conference Jerome Powell did not rule out the possibility that the March increase in rates will be the last one, as many FOMC members suggested making a pause in monetary restriction.FOMC Federal Funds Rate ProjectionsThe idea of a "dovish" spread has returned to the markets, especially since the inversion of the yield curve, which Jerome Powell believes is the best indicator of a recession, clearly points to an economic slowdown.The dynamics of the yield curve in the U.S.There was a similar pattern in forex trading in the spring when the idea of a Fed rate change pushed EUR/USD and other risky assets higher. If we remember the improving economic situation in the Eurozone, the deposit rate hike from the ECB and the run-up in China, further strengthening of the Euro against the weakening greenback is beyond doubt.We consider buying EUR/USD with targets at 1.12 and 1.14.

While waiting for the Fed's interest rate decision on Wednesday, GBP/USD is moving without any clear direction near the 1.2230 level.Prior to the Fed's release and Jerome Powell's press conference, market participants will pay attention to British inflation data. Analysts expect a decline from 10.1% to 9.8% (y/y) and an increase of 0.6% (m/m).Core inflation is likely to remain at 5.8%.But of course, the main event of the day will be the news from the United States. The Fed has a difficult task. On the one hand the regulator has to continue the fight against inflation, on the other hand it has to pay attention to the problems of the financial sector and not to allow the banks to go bankrupt.Analysts mostly believe that the Fed will choose the "middle" option and raise the rate not by 50 but by 25 basis points to 5.00%. Investors want to see from Jerome Powell's speech whether the Fed will end its monetary restriction cycle or take a pause. Or maybe the central bank will continue to raise the rate to the previously indicated targets.The Bank of England will hold a rate hike of 25 basis points tomorrow, although today's inflation report might influence the regulator's decision.Technical Analysis GBP/USDBollinger Band indicator is rising moderately. MACD indicator remains in the positive range. Stochastic Oscillator from the top down is testing the 80% level and trying to get out of the overbought area.Today is an eventful day, each of which can completely cancel the signals of technical analysis. At the same time Forex trading based on the news is risky and for traders who prefer calm position trading, the best option is to stay out of the market.For the followers of "technique", a break-down of the resistance at 1.2283 will be a buy signal. The target is at 1.2400. Stop-loss is taken out at 1.2230.It is advisable to open short positions after the price fixes below support at 1.2yo176. Target level is 1.2100. Stop-loss is set at 1.2225.

FOREX Fundamental analysis for EURUSD on March 22, 2023Which way will the Fed choose? Continue to fight inflation in spite of the banking crisis? Or pause its monetary restriction to allow the financial system to stabilize? The decision is clearly not going to be an easy one. Jerome Powell's team is between a rock and a hard place, although the rise in stock indices shows a clear improvement.In the futures market, the probability of a 25 basis point rate hike has risen from 60% to 89% in three days. At the same time, 11 Bloomberg experts out of 98 surveyed believe that the regulator will pause in tightening monetary policy. In addition, some analysts are confident that the banking crisis will force the Fed to begin a "dovish" U-turn with a systematic easing of monetary policy.The dynamics of the Fed's rate and term market expectationsNotably, the banking crisis was an additional financial tightener. According to Apollo Global Management, market turmoil due to bankruptcies is equivalent to a 150 basis point rate hike. That is, on this side the Fed is clearly ahead of schedule.In a word, we are left to guess about today's decision of the Central Bank. There are plenty of options and each of them can cause a flurry of volatility in currency pairs at Forex.FOMC rate forecastsIf the regulator leaves the rate ceiling at 5.1%, the EUR/USD rally will continue. If the regulator raises the peak rate to 5.25%-5.5%, the dollar will get support, but it will probably be short-lived. In this case, the EUR/USD will head towards 1.0715, which will allow us to buy the pair at a cheaper price. Targets for the Eurodollar are at 1.09 and 1.11.

FOREX Fundamental analysis for EURUSD on March 21, 2023The Fed's two-day meeting starts today but it is already clear that there is no unequivocal opinion among the FOMC members on further rate hike. Some officials, who fear a banking crisis, say they will postpone a monetary tightening at least into March. Others believe that the difficulties in the banking sector are temporary, and if the tightening of monetary policy is interrupted, all the efforts spent on fighting inflation will be in vain, as inflationary pressure will return to growth, as it was in the 1970s.In the futures market, the probability that the Fed will raise rates by 25 basis points in March has reached 72%.The Fed's monetary tightening cyclesThe bond market seems to have been spooked the most by the banking crisis. Yields are showing their fastest decline since 1987. Stocks, on the other hand, are completely ignoring the banking problems. Nevertheless, the financial stress is sure to hurt the United States economy. Goldman Sachs predicts that a sharp credit contraction will cut 2023 GDP growth by 0.3%. This is equivalent to the effect of 1 or 2 25 basis point monetary cuts. But unlike a rate hike, the news will put pressure on the U.S. dollar.The uncertainty brings the idea of a dovish Fed reversal back to the market. If literally, a week ago investors were speculating about a rate hike to 6%, now they assume that the Fed's cumulative restriction will not exceed 35 basis points.The ECB deposit rate is roughly the same. Instead of the previous target of 4.2%, a ceiling of 3.2% now seems more realistic.U.S. and German bond yields indicating a lower Fed and ECB rate ceilingThe markets will know the Fed's decision tomorrow. Our purchases from 1.0575 and 1.0665 have justified, we will increase longs with targets at 1.0755 and 1.0825.

Fundamental analysis FOREX for March 20, 2023Three large credit institutions in the United States declared bankruptcy in March and First Republic bank needs urgent financial aid. This indicates the serious problems of the financial system, and the problems are global, since the banking crisis is spreading around the world very quickly. Credit Suisse of Switzerland went into a downward spiral, but it will be bought by the largest UBS, but only under the financial guarantees of the Government and the National Bank of Switzerland. All this is reflected in forex trading and, in particular, in the dynamics of EUR/USD, which returned to strengthening at the end of the week.Meanwhile, the OSER is calling on the Fed to raise rates and considers the ECB's 50-basis-point monetary tightening to be absolutely the right decision. In this regard, the markets have returned to the belief that the Fed will raise rates by 25 basis points on March 21-22, although last week it was expected that the US regulator would pause in tightening monetary policy after the banking sector crisis.Assumed dynamics of the federal funds rateIt should be noted that two opposing views are now strong in the market. A part of investors believe that the recession of the US economy is much closer than expected, so the Fed's "dovish" U-turn will come as soon as this year. Another part believes the regulator will raise the rate to 5.5%, or even 6%, and the U.S. economy, despite problems in the banking sector, will avoid recession.Forecasts for the U.S. economyNevertheless, investors are gradually moving away from forex trading on the news and switching to monetary policy divergence and macroeconomic reports. At the moment the ECB's monetary restriction rate is higher than the Fed's, which is a positive factor for EUR/USD, so we continue to buy the pair towards 1.0755 and 1.0825.

FOREX Fundamental analysis for EURUSD on March 17In the atmosphere of an impending banking crisis the main goal of the ECB was not to cause any harm. The regulator might well have abandoned the monetary restriction or conducted it in a smaller volume, but Christine Lagarde's team acted according to the initial plan and raised the rate by 50 basis points.Investors understood that the ECB is in control and still considers the fight against inflation in the Eurozone a priority. This is a good sign for the single currency, though the initial market reaction to the Central Bank's decision was a fall in EURUSD. The reason was clearly "dovish" signals of the regulator that refused a steady pace of rate hikes and lowered its forecasts for the year-end consumer price index from 6.3% to 5.3% and for 2024 from 3.4% to 2.9%.European Central Bank Inflation Forecasts.It appears that the ECB will finish the inflation battle faster than previously thought. In this regard, the futures market has quite logically lowered the maximum rate forecast from 4.2% to 3.2%. Confirmation of the fact that the cycle of monetary restriction is in the stage of completion is the fall of German 2-year bond yields below the ECB rate.Dynamics of German bond yields and the ECB rate.However, it is likely that much in the ECB's actions will depend on external factors, in particular, on the situation in the banking sector in the United States and the Eurozone. If the situation stabilizes, the regulator will continue to raise the rate, the more so since Christine Lagarde said the Eurozone banking system is in excellent condition and assured that the ECB has enough funds to support the financial structure.In the U.S. the big banks also expressed their willingness to support the First Republic Bank and provide it with additional liquidity worth $30 billion. This news supported the stock market, and through the correlation of currencies, the buyers of risky assets.It's not impossible that the banking crisis will still make itself known, but the willingness of the Fed, the ECB and the major financial institutions to help the euro buyers in trouble. Our trading method on Forex remains the same - after EUR/USD returns we open longs, and after the pair's fixation above 1.0665 we will increase the longs.

Forex analytics on USDJPY for March 16USDJPY remains in a narrow price range on Thursday, consolidating after a sharp decline.The macroeconomic statistics, published in Japan, had no effect on the dynamics of the asset. Industrial production in January lost 3.1% (y/y), which was worse than analysts' forecasts. In monthly terms the fall is even more obvious (-4.6%). At the same time, the volume of exports in February increased considerably (+6.5%), though analysts forecasted +7.1%. The volume of imports increased by 8.1%. Indicators of import-export operations helped to reduce the trade balance deficit in the Country of the Rising Sun from -3498.6 billion yen to -897.7 billion yen.The previous day the minutes of the Bank of Japan meeting were published, according to which the regulator decided to keep the course of ultra-soft policy. Members of the board think that tougher course will interfere with economic recovery, which has just started to give positive signals. Moreover, Japan has decided to adjust the wage level, although experts believe it will not be enough to support the citizens in the context of inflation reaching a 41-year high of 4.0%.Technical analysis for USDJPYOn the daily chart a downward rectangle pattern may be formed. Bollinger Bands are turned down, MACD is decreasing in the negative range. Stochastic oscillator has reversed upward and is out of the oversold area.After a confident breakdown of 134.00 resistance, we will open long positions with a target at 135.57. Stop-loss is set at 133.20.Upon fall of the pair below support at 132.00, we will start selling with take profit at 130.00. Stop-loss is set at 133.00

After a two-day decline with a renewal of the low of March 10, GBPUSD starts to recover its losses on Thursday. During the Asian session the pair tested the resistance 1.2080 to break up.Today the U.S. will release a report on jobless claims and construction industry statistics. Tomorrow, the University of Michigan will release consumer confidence index for February. The index is expected to retain its previous value of 67.0 p.Yesterday the UK Finance Minister presented to the Parliament the draft budget for the current year according to which GDP is expected to fall by 0.2% which is better than the initial version which envisaged a 1.5% decline.The Cabinet of Ministers expects the economic downturn to end this year. Next year GDP is expected to grow by 1.8%, in 2025 - by 2.5%. At the same time, by the end of 2023, inflation is projected to fall to 2.9%.In addition, the draft budget assumes support for families with children, as many parents in the UK cannot return to their jobs because of skyrocketing childcare costs.The Bank of England will meet next week, and investors are concerned about the outlook for the British regulator's monetary policy.GBPUSD Technical AnalysisOn the daily chart the Bollinger Band indicator has not chosen a definite direction and demonstrates flat dynamics.The MACD histogram is near the zero line. The indicator does not show any signalsStochastic Oscillator is declining and has already left the overbought area.In case of a confident breakdown and consolidation of the price above 1.2100, we form long positions, aiming for 1.2176. Stop-loss is set at 1.2054.Pair fixation below 1.2054 will tell about development of descending movement. The sellers' target is 1.1950. Stop-loss is set at 1.2100.