EUR/USD Extends Gains Above 1.0600 On Credit Suisse Relief, ECB In Focus

EUR/USD is extending the recovery gains above 1.0600 in the European session. The pair is finding its feet amid a positive shift in the risk sentiment as fears ebb over the Credit Suisse crisis. All eyes remain on the ECB rate hike decision for new trading direction.

EUR/USD was last seen trading in the 1.0620/30 area, where the 50-period and the 10-period Simple Moving Averages (SMA) align. If the pair stabilizes above that region, it could face interim resistance at 1.0660 (static level) before targeting the 1.0690/1.0700 area (200-period SMA, psychological level, static level).

On the downside, the first support is located at 1.0600 (psychological level, static level), ahead of 1.0530 (static level= and 1.0500 (psychological level).

EUR/USD has gathered recovery momentum and advanced beyond 1.0600 early Thursday after suffering heavy losses on Wednesday. The European Central Bank’s (ECB) policy announcements and its approach to market turmoil could drive the Euro’s valuation in the second half of the day.

Flight to safety intensified on Wednesday as news of Credit Suisse’s inability to receive additional financial support from Saudi National Bank revived fears over the financial crisis spreading to Europe. EUR/USD stayed under constant bearish pressure throughout the day and touched its lowest level since early January at 1.0515.

In the late American session, however, the Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority (FINMA) said that Credit Suisse met the capital requirements in case it needed to raise liquidity. In turn, EUR/USD managed to erase a small portion of its daily losses before the end of the day and extended its rebound during the Asian trading hours on Thursday.

Reflecting the improving market mood, Euro Stoxx 50 Index opened nearly 2% higher following Wednesday’s 3.5% decline. Later in the day, the European Central Bank (ECB) is expected to raise its key rates by 50 basis points. Earlier in the week, several news outlets reported that dovish ECB policymakers would argue that the changing economic environment would warrant more caution regarding aggressive policy tightening.

If the ECB says that it can change its approach to policy tightening if it sees additional signs of stress in financial conditions in the Eurozone, the Euro is likely to have difficulty finding demand. On the flip side, the bank could downplay market jitters and note that it was an isolated event unlikely to occur again. Markets are likely to expect additional big rate hikes. In that scenario, EUR/USD is likely to remain bullish and extend its rebound.

If the ECB surprises the markets by opting for a 25 bps hike, that will likely trigger an intense selloff in the Euro, at least with the immediate reaction.

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