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EUR/USD Technical Analysis: Calming Tensions Support the Pair

There is no change in my technical point of view regarding the performance of the price of the EUR/USD currency pair, only the performance on the daily chart below. 

  • Since the start of this week's trading, the price of the EUR/USD currency pair is in an upward rebound range, with gains that reached the 1.0849 resistance level, which is stable around it at the time of writing the analysis.
  • And the latest performance is that the euro could receive better support in the coming days if confidence in Deutsche Bank improves further.
  • Shares in the German bank rallied on Monday as analysts said the recent sell-off was "irrational" as the euro locked in above Friday's lows.
  • Accordingly, analysts say that the recent sell-off in Deutsche Bank shares reflects a crisis of confidence and not a fundamental problem with Germany's largest bank, which should allow it to recover.

Prior to that, the euro was sold across the board last Friday as investors feared that the series of recent bank failures would extend to Deutsche Bank after the explosion of the cost of insurance against bank failure. And with Deutsche Bank systemically important to the eurozone, investors are betting that the European Central Bank (ECB) may have to rethink its guidance on raising interest rates much more, for fear of causing more bank failures.

Decreased expectations of peak interest rates at the European Central Bank tend to weigh on the euro. “If confidence in European banks continues to deteriorate, it is very likely that the downward correction in EUR/USD could continue further,” said Derek Halpenny, Head of Global Markets Research at MUFG Bank.

EUR/USD fell by two-thirds of a percent on Friday to close at 1.0758, and EUR/GBP fell 0.15% to 0.8799 (pound to euro hit 1.1365). The analyst added that the shift in focus to Deutsche Bank likely led to the unwinding of euro-long positions. "With a renewed focus on Europe, the euro is understandably underperforming," he also said. Davide Oneglia, an analyst at TS Lombard, says: “It is not surprising that the next bank in line for the decline is now Deutsche Bank – often associated with Credit Suisse in the past due to managerial/strategic failures and involvement in numerous financial scandals.”

The euro's losses were sharper, but a rebound in Deutsche Bank shares before Friday's close pulled exchange rates off their lows. It is possible that the Euro will regain more of its lost value if Deutsche Bank concerns pass, as this will ease pressure on the broader banking sector in the Eurozone.

Shares of Deutsche Bank rose 6.0% on Monday as the market calmed and the euro seemed better supported. Analysts add that Deutsche Bank is in a fundamentally better position today than it has been in years past. Accordingly, Oneglia of TS Lombard says: “After a long and painful restructuring, Deutsche Bank is now not what it was in 2016, and ironically, it recorded record profits in 2022.”

In a new note, the analyst adds that selling in the Eurozone (EA) continues to appear more related to lack of confidence than to fundamentals. Therefore, if this is true, a real banking crisis in the eurozone on the back of the failure of Deutsche Bank is unlikely.

This should limit the downward trend of the Euro.

“We continue to humbly lean into the position that the banks' recent concerns are related to some distinct banks,” says Christopher Kjer Lumholt, forex analyst at Danske Bank. The overall fears of risk are exaggerated and the general historical comparison more closely resembles the US savings and loan crisis of the 1980s than the great financial crisis of 2007/08. “If this analysis is correct, then EUR/USD could face some upside pressure in the near term,” he adds.

EUR/USD Technical Outlook:

There is no change in my technical point of view regarding the performance of the price of the EUR/USD currency pair, only the performance on the daily chart below. The currency pair is walking inside an upward channel, and returning to the top of 1.0915, which was recorded in the current month’s trading, may push the bulls to test the psychological top 1.10, which supports the strength of the trend.

On the other hand, for the same time period, the support level at 1.0700 will be important for the bears to control the trend again. The EUR/USD will be affected by investor sentiment and the signals of global central banks, especially with concerns about the strength and spread of the banking crisis.


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Mahmoud Abdallah
About Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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