Risk assets gained favor in Thursday trading following rescue efforts by the Swiss National Bank and large U.S. Banks, which committed $54B and $30B, respectively, to shore up liquidity in struggling banks. Credit Suisse and First Republic bank shares gained after a severe sell-off amid market panic.
The European Central Bank (ECB) twisted the knife on inflation with a 50 basis point rate hike, further boosting the currency. Today’s Euro Area CPI came in relatively flat, while the inflation rate month on month came in as expected, although proving to be sticky. Traders will now turn their attention to next week’s U.S. interest rate decision as they gauge whether inflation or protection of the banking sector is the Federal Reserve’s main priority.
Following a sharp sell-off and breakout below the 100-day moving average, the EURJPY currency pair formed resistance at the 144.962 level, while support was established at the 139.520 level after a rejection.
The pair moved higher and rejected the 50% Fibonacci Retracement level at 142.241 on Friday, after volumes to the upside subsided. This could signal the lack of interest by bulls to take the pair any higher. Bearish traders could drag the currency pair lower toward support at the 139.520 level.
Alternatively, if bulls look to power through the market, a high volume breakout above the 142.241 level could prompt further upside gains. Bulls will likely look to the 61.80% Fibonacci Retracement Golden Ratio at the 142.883 level for take-profits.
The critical factor that traders will consider next week is the U.S. interest rate decision which will have a massive bearing on risk appetite. If the Fed hikes by 25 basis points as expected, risk assets could experience some downside pressures as safe-haven assets such as the greenback and U.S. bonds become slightly more attractive.
Sources: Reuters, TradingView