EUR/USD STABILIZES ABOVE 1.0600, UPSIDE LOOKS LIKELY AS FED-ECB POLICY DIVERGENCE TRIMS

The EUR/USD pair is defending its auction above the round-level resistance of 1.0600 in the early Tokyo session. The major currency pair is looking to hold a bullish bias as the interest rate decision of 50 basis points (bps) rate hike by the European Central Bank (ECB) has trimmed the Federal Reserve (Fed)-ECB policy divergence.

On Thursday, ECB President Christine Laragde pushed interest rates to 3.50% despite discouraging headlines about banking turmoil. ECB Lagarde preferred to maintain its entire focus on the Eurozone inflation, which is extremely stubborn, and hawkish monetary policy is not showing any meaningful improvement in the battle against the former.

Also, the announcement of a fresh infusion of 50bln Swiss Francs into Credit Suisse promised by the Swiss National Bank (SNB) supported the ECB to go for a bigger rate hike.

Support from various financial institutions for the First Republic Bank after an infusion of fresh life into Credit Suisse by the SNB indicated that the mass banking crisis could be avoided. This infused a sense of optimism in investors and risk-perceived assets was heavily bought. S&P500 futures showed a rampant recovery and settled Thursday’s session with bumper gains.

Meanwhile, demand for US government bonds trimmed as investors channelized funds into US equities. The alpha offered on the 10-year US Treasury yields scaled to 3.58%.

The US Dollar Index (DXY) is displaying a sideways performance as investors are shifting their focus toward the monetary policy decision by the Fed, which will be announced next week. As per the CME FedWatch tool, the odds for a 25 basis point (bps) interest rate hike by Fed chair Jerome Powell have scaled to near 80%.