Euro makes a date with 1.1075 year-to-date highs on confidence-boosting bank earnings

• Euro vs US Dollar almost reaches 2023 highs at 1.1075 before rolling over.
• Single currency is boosted by Eurozone bank earnings, showing the sector is in good health.
• Technicals show the uptrend remains intact and is expected to continue.

The Euro (EUR) is pulling back after almost touching year-to-date highs above 1.1000 against the US Dollar (USD) during the early European session, on Tuesday. The single currency is supported by confidence-boosting Eurozone bank earnings, which suggest the sector has weathered the March crisis better than expected. Hawkish comments from rate-setters at the European Central Bank (ECB) further aid the Euro, as expectation of higher interest rates would lift capital inflows into Europe. From a technical perspective, the overall trend is up, with the probabilities favoring longs over shorts. 

EUR/USD market movers

• The Euro gains strength from comments by Pierre Wunsch, president of Belgium’s Banque Nationale, who said “We are waiting for wage growth and core inflation to go down... before we can arrive at the point where we can pause (hiking rates).”
• The ECB’s chief economist Philip Lane has gone on the record saying interest rates will rise at the May 4 meeting but whether beyond that depends on the data. 
• Previously, the Irishman said a lot is riding on the state of Eurozone banks, as assessed by the ECB’s Bank Lending Survey out on May 2, as well as April flash HICP inflation data released on the same day.
• Strong first quarter earnings by European banks due to higher interest margins, however, suggest the BLS will paint a favorable picture. 
• Banco Santander’s recently released Q1 earnings, for example, beat profit estimates of 2.4B with 2.57B. 
• ECB President Christine Lagarde recently said there is still “some way to go” before Frankfurt is done with hiking interest rates. 
• The US Dollar is at a disadvantage since Federal Reserve (Fed) officials are in the two-week blackout period before the May 4 meeting, during which time they are not allowed to comment. 
• Prior to the blackout, St. Louis Fed’s Bullard was hawkish, saying he expects more rate hikes due to persistent inflation and overblown recession fears.   
• Unexpectedly strong first quarter earnings by US banks suggests the sector’s March crisis may be in the rear-view mirror, further supporting the Greenback. 
• The key data release for the US Dollar is Consumer Confidence for April, out at 14:00 GMT. There is no major macroeconomic data out for the Euro. 

EUR/USD technical analysis: Nearing year-to-date highs

EUR/USD breaks out of a right-angled triangle (more clearly seen on the 4-hour chart) and unfolds another leg higher, in line with the broader medium-term uptrend that began over eight months ago. The pair is fast approaching the year-to-date highs at 1.1075. The odds favor a continuation of the dominant Euro bullish trend.

EUR/USD: Daily Chart

A decisive break above 1.1075, which was touched on April 14, would confirm a continuation of the Euro’s uptrend to the next key resistance level at around 1.1190, where the 200-week Simple Moving Average (SMA) sits.

For the sake of clarity, the definition of a ‘decisive break’ either includes a ‘breakout candle’ – a long green bullish daily candle that extends above the 1.1075 highs and closes near its high, or three smaller bullish green candles in a row that break above the highs. 

Alternatively, a break and daily close below the key lower high at 1.0830 would bring into doubt the validity of the uptrend and could see losses extend down to a confluence of support at 1.0775-1.0800, marking a possible reversal of the dominant trend.