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16 Mar 2023

EUR/USD Price Analysis: Short-term downtrend resumes after four-day rally reverses, finger on risk

  • EUR/USD slumps amid Credit Suisse woes, as the liquidity drained.
  • EUR/USD technical outlook: 21-DMA and 50-DMA weighing downside pressure.
  • Downside bias intact with eyes on the 1.0500 mark.
  • ECB meeting is only hours away.

EUR/USD took a sharp decline after a four-day rally. The declines came after some risk aversion in the wake of the worsening financial condition of Credit Suisse. This is the first sign in Europe that any bank has faced a liquidity crunch issue amid higher borrowing costs. All eyes will be on the European Central Bank (ECB) rate decision for any directional bias.

The EUR/USD pared back most of the gains that took it to the 1.0750 level, which is also pegged with the 50-Day Moving Average (DMA) and a multi-tested support zone coinciding with a 50% Fib level of the 2021-22 decline.

The EUR/USD found its ground after hitting a multi-month low at the 1.0526 mark. The previous day's rapid fall forced the pair to penetrate the 21-DMA, which is now acting as resistance on the rebound.

The 21-DMA is coinciding with the 23.5% Fib level of the 2023 rally and may act as a strong resistance zone. Any upside momentum will have to confront all Fib levels as well as the 21-DMA and 50-DMA. The downside bias is likely to remain intact, and all eyes will be on the 1.0500 key psychological mark; a break below will throw the pair into no man's land.

The short-term trend is down, supporting bears. The 1.04820 lows and the 100-day SMA both present as key support levels. A break and close on a daily timeframe below these levels would be necessary to provide impetus for more downside. If so, the next target comes in as the 200-day SMA at circa 1.0325. 

Given the high volatility expected around today’s ECB meeting, which begins with the release of the policy statement at 12:15 GMT, however, traders are advised to act with caution.

EUR/USD: Daily chart

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