On Thursday, the European Central Bank faced a serious conundrum as they delivered their interest rate decision amid ongoing fears surrounding a global banking crisis. The EURUSD currency pair stumbled 2.3% the day before to a year-to-date low. Credit Suisse was the latest casualty in the banking sector turmoil, forcing the markets to price in a potential 25bps hike rather than the 50bps consensus.

The ECB had a difficult decision to make, as the market feared a 50bps hike would ignite the fear and aid the flight to safe-haven currencies, while a more dovish outlook would not provide the currency pair with any upside support either. The decision was eventually made to hike the rates by 50bps, sticking with their initial projection, which supported the currency pair slightly in the minutes following the release. 

Technical 

Following the release, the currency pair retested the support at $1.0599 that it broke out of earlier in the day. If the market reacts favourably to the 50bps hike, the bulls could gather some short-term momentum to push to the higher resistance at $1.0666. However, the fundamental outlook on the global sentiment remains a headwind, which could result in the bears maintaining control. 

If support at $1.0599 does not hold, the bears could exert further pressure toward $1.0575. A rejection of support would signal a continuation of the bearish momentum, opening up a runway for another leg down to $1.0531 and $1.0484. With traders flocking to a hideaway in defensive currencies, the US dollar could retain its strength, limiting the possibility of the currency pair bulls fighting the downturn.  

Summary 

Even with the ECB’s hawkish interest rate hike, the EURUSD currency pair will unlikely gain meaningful support. The bears could rally down on the global risk-off sentiment toward $1.0531 and $1.0484 to reach new yearly lows. 

Sources: Koyfin, Tradingview