- EUR/USD has advanced to its highest level in nearly a month on Monday.
- Fed governors will hold a closed-door meeting later in the day.
- Bulls could remain interested if the pair manages to stabilize above 1.0700.
After having closed the third straight day in positive territory on Friday, EUR/USD has extended its rally early Monday and touched its strongest level in nearly a month at 1.0737. In the early European session, the pair staged a correction and dropped below 1.0700.
Despite the upbeat labor market data from the US on Friday, the US Dollar (USD) came under heavy selling pressure amid the collapse of Silicon Valley Bank.
Markets grow increasingly concerned over the negative impact of the Federal Reserve’s aggressive tightening policy on financial institutions. In a report published earlier in the day, Goldman Sachs said that they were expecting the Fed to keep its policy rate unchanged at the upcoming meeting.
Later in the session, Fed governors will hold a pre-scheduled closed-door meeting. According to Bloomberg, policymakers will discuss easing the terms for banks to access its discount window to prevent a similar failure.
The current action in EUR/USD seems to be a technical reaction to the latest sharp upsurge. In case investors are convinced that the Fed will change its stance to ease market fears, the US Dollar could find it difficult to stay resilient against its major rivals. The CME Group FedWatch Tool shows that markets are currently pricing in no chance of a 50 basis points Fed rate hike in March, compared to a over-70% probability last Wednesday after Fed Chairman Jerome Powell said that they could increase the pace of rate hikes.
Since there won’t be any high-impact data releases, market participants will keep a close eye on the performance of US Treasury bond yields and US stocks. Another leg lower in the 10-year US T-bond yield could continue to weigh on the USD and vice versa, at least until Tuesday’s Consumer Price Index (CPI) data.