• EUR/USD advances modestly within a tight range.
• The European banking sector remains in the centre of the debate.
• Germany’s Business Climate improves further in March.

EUR/USD looks to leave behind the recent 2-day weakness and navigates within a narrow range and amidst tepid gains near 1.0770 on Monday.

EUR/USD remains cautious on banking jitters

EUR/USD starts the week in a positive fashion and so far prints humble gains near 1.0770 on the back of the generalized prudence among market participants regarding developments in the banking sector.

In the meantime, the absence of a clear direction in the broad risk appetite trends favour the pair’s ongoing erratic performance, although better-than-expected results from the German docket lends some support to the single currency on Monday.

On the latter, Business Climate in Germany tracked by the IFO Institute improved to 93.3 for the month of March (from 91.1). In addition, an IFO economist suggested that a winter recession in the country now looks more unlikely and noted a smaller proportion of businesses that want to raise prices.

From the ECB, Board member Simkus noted that bank liquidity and capitalization remain high in the euro area, while his colleague De Cos suggested tighter financial conditions have been impacting on the outlook for the economic activity and inflation. Later in the session, ECB’s Board members Elderson and Schnabel are also due to speak.

Across the pond, the speech by FOMC’s P.Jefferson will be in the limelight along with short-term bill auctions.

What to look for around EUR

EUR/USD manages to stage a small rebound following the strong pullback seen in the second half of the week.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB in a context still dominated by elevated inflation, although amidst dwindling recession risks for the time being.

Key events in the euro area this week: Germany IFO Business Climate (Monday) – France, Italy Business Confidence (Tuesday) – Germany GfK Consumer Confidence, France Consumer Confidence (Wednesday) – Germany  Flash Inflation Rate, EMU Consumer Confidence, Economic Sentiment (Thursday) – Germany Retail Sales/Labor Market Report, EMU Flash Inflation Rate/Unemployment Rate, France Flash Inflation Rate, Italy Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Continuation, or not, of the ECB hiking cycle. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.07% at 1.0767 and a break above 1.0929 (monthly high March 23) would target 1.1032 (2023 high February 2) en route to 1.1100 (round level). On the flip side, immediate support emerges at 1.0712 (low March 24) followed by 1.0621 (100-day SMA) and finally 1.0516 (monthly low March 15).