EUR/USD skates on thin ice near 1.0600 as Credit Suisse upset prods ECB hawks

• EUR/USD sticks to mild gains while paring the biggest daily loss since September 2022.
• ECB policymakers are likely to cite inflation fears to justify anticipated 50 bps rate hike, forward guidance will be crucial.
• As Credit Suisse crisis follows US bank fallouts, fears of financial market crackdown like 2008 could weigh on Euro pair.
• Bond market moves, ECB’s signals for future rate hikes and economic conditions will be crucial for near-term directions.

EUR/USD picks up bids to 1.0600 as it pares the biggest daily loss in almost six months ahead of the European Central Bank’s (ECB) Monetary Policy Meeting. However, the major currency pair remains mostly sidelined in the last few hours as traders doubt the hawkish concerns about the old continent’s central bank after the Credit Suisse crisis.

On Wednesday, Reuters cited a source familiar with the matter, Reuters reported on Wednesday that European Central Bank (ECB) policymakers are leaning toward a 50 basis points (bps) rate hike on Thursday. The news also said, “Despite turmoil in the banking sector, policymakers expect inflation to remain too high in the Eurozone,” while adding that the Governing Council doesn't want to damage its credibility by ditching the 50 bps rate increase after having repeatedly noted that this was their intention.

It should be noted that the Saudi National Bank’s rejection of infusing more funds into Credit Suisse propelled the key European bank’s Credit Default Swaps (CDS) and triggered the crisis for the financial markets on Wednesday. Further amplifying the sour sentiment was the news that the European Central Bank (ECB) officials contacted banks to ask about exposures to Credit Suisse. The bank’s crisis becomes crucial to the global financial sector as Credit Suisse is a G-SIB – a global systemically important bank and the drama erupts after the latest fallouts of the US banks, namely Silicon Valley Bank (SVB) and Signature Bank.

However, the news that Credit Suisse eyes borrowing up to CHF50 billion from the Swiss National Bank (SNB) to strengthen liquidity gained major attention and allowed EUR/USD bears to take a breather. On the same line could be the news that anonymous sources conveyed that the US banks are less vulnerable to the Credit Suisse debacle. Furthermore, the emergency talks by the Bank of England (BoE) and market chatters suggesting no immediate negative reaction by the Federal Reserve (Fed) and ECB, during their monetary policy meetings, also seem to tame the previous risk aversion.

Amid these plays, the S&P 500 Futures rise 0.40% intraday to reverse the previous day’s losses around 3,940 whereas the US 10-year Treasury bond yields stabilize around 3.48% after falling the most in four months on Wednesday. That said, the two-year Treasury bond coupons also pause the further downside around 3.94%, after falling to the lowest levels since September 2022.

Looking ahead, the ECB’s reaction to the Credit Suisse crisis will be the key for EUR/USD traders to watch as 50 basis points (bps) of a rate hike from the bloc’s central bank is a done deal. As a result, ECB President Christine Lagarde’s Press Conference will be more important and could drown the EUR/USD pair despite announcing a rate hike if raising doubts about the future rate lifts and economic conditions.

Also read: ECB Preview: Set for 50 bps rate hike, Lagarde holds the key

Technical analysis

A convergence of the 100-DMA and an ascending trend line from early December 2022, near 1.0550, appears a tough nut to crack for bears.