The EUR/USD pair advanced beyond the 1.0700 level on Monday despite the risk-off environment prompted by the Silicon Valley Bank shutdown. The greenback suffered the pressure of lower U.S. yields amid expectations the Federal Reserve will have to hold the trigger on rates amid the banking sector turmoil and somewhat disappointing jobs data.
At the time of writing, the EUR/USD pair is trading at 1.0730, up 0.85% on the day, after hitting a one-month high of 1.0738. Meanwhile, the US Dollar Index has fallen below the 104.00 level to trade at its lowest level since February 16, around 103.65, recording a 0.95% daily loss.
Investors' focus now shifts to U.S. consumer inflation data on Tuesday as President Joe Biden attempts to calm down banking system fears. Still, the banking crisis could offset macroeconomic data ahead of the Fed's meeting.
Investors are cutting down expectations of a 50 bps rate hike at the March 21-22 meeting. Against this backdrop, the U.S. bond yield plummeted across the curve on Monday, as the 10-year yield is trading at 3.47%, down by nearly 6%. The 2- and 5-year bond rates stand at 4.17% (-9%) and 3.69% (-6.8%), respectively.
The market's pace will likely continue to be driven by risk flows and investors' expectations on how the Fed will respond. FOMC officials must now weigh the trade-off between controlling inflation and lending some air to the financial system.
From a technical perspective, according to indicators on the daily chart, the EUR/USD pair holds a slightly bullish short-term outlook. The RSI and MACD jumped to positive territory, and the pair now trades above its main moving averages.
On the upside, the following resistance levels line up around 1.0740 and at the 1.0800 level ahead of the more relevant 1.0900 zone, which is the 50% retracement of the 1.2266-0.9535 decline. On the downside, supports are seen at the 20-day SMA at 1.0630, followed by the 1.0600 psychological mark and the 1.0540 zone (100-day SMA).
