
Yesterday, EURUSD fell sharply following the Credit Suisse news. After dropping below 1.07, it quickly extended to 1.0530 support within a matter of hours. The banking crisis is continuing to escalate and putting central banks in a difficult position, balancing the fight against inflation and maintaining financial stability.
Today, the ECB will be the first bank to make a rate decision since the recent developments. In the last press conference, Lagarde stated that they plan to increase rates by 50 basis points in March, unless something significant happens. However, with the current situation, the big question is whether this increase will be slowed. Market surveys are showing a 50 point hike, but these are becoming outdated. The probability of a 50 point hike has fallen to 14.5% on the swap market. While there is a lot of banking news, inflation numbers within the Eurozone and its countries have mostly been higher than expected. According to unconfirmed reports, the ECB thinks underlying inflation is rising. The ECB will be in a tough situation trying to fight increasing inflation within an ongoing banking crisis and a war close to Europe.
In addition to the rate decision, the ECB forecasts will also be crucial for the markets. The inflation forecast is likely to be higher than the previous one, and there are question marks surrounding how recent developments will affect the GDP numbers.
As for EURUSD, the recent news of liquidity help for Credit Suisse from SNB has calmed nerves somewhat, and a jump started from the 1.0530 support. Depending on the ECB decision and Lagarde’s comments, EURUSD could continue to move to 1.07 resistance or the upper line of the trend channel, 1.0750. On the downside, a pullback to 1.0530 support or the lower line of the channel, 1.0420, are both possibilities. A 50 point hike might cause a short-term jump.