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The Euro could be better supported over the coming days if confidence in Deutsche Bank improves further.

Shares in the German lender were higher Monday with analysts saying the recent selloff was "irrational" with the rise securing the Euro above Friday's lows.

Analysts say the recent selloff in Deutsche Bank shares reflects a crisis of confidence rather than a fundamental problem with Germany's largest lender, which should allow it to recover.

The Euro was sold across the board last Friday as investors feared a recent run of bank collapses would extend to Deutsche Bank after the cost of insuring against the bank's failure exploded.

Because Deutsche Bank is systemically important to the Eurozone, investors bet that the European Central Bank (ECB) might have to rethink its guidance on raising interest rates much further, for fear of triggering further bank failures.

Retreating expectations for the peak in ECB interest rates tends to weigh on the Euro.

"If confidence in European banks continues to deteriorate it seems highly likely that the correction lower in EUR/USD could have further to go," says Derek Halpenny, Head of Research for Global Markets EMEA at MUFG Bank.

The Euro to Dollar exchange rate (EUR/USD) retreated by two-thirds of a percent on Friday to close at 1.0758, the Euro to Pound (EUR/GBP) retreated 0.15% to 0.8799 (Pound to Euro up to 1.1365).

Halpenny says the shift in focus to Deutsche Bank likely fuelled a liquidation of Euro longs.

"With the focus back on Europe, EUR is understandably underperforming," he says.

"Unsurprisingly the next bank in the firing line is now Deutsche Bank - often associated with Credit Suisse in the past because of managerial/strategic failures and involvement in many financial scandals," says Davide Oneglia, an analyst at TS Lombard.

Losses for the Euro had been more severe but a recovery in Deutsche Bank shares ahead of the Friday close drew exchange rates from their lows.

The Euro would likely recover further lost value should the Deutsche Bank fears pass, as this would relieve pressure on the broader Eurozone banking sector.

Above: Data from Friday revealed the Euro to be tracking the fortunes of Deutsche Bank shares.

Deutsche Bank shares are higher by 6.0% on Monday amidst a calmer market and the Euro is looking better supported.

The GBP/EUR is quoted back at 1.1380, the EUR/USD is at 1.0772.

Analysts say Deutsche Bank is now fundamentally better placed today than was the case in years gone by.

"After a long and painful restructuring, now Deutsche Bank is not the same as it was in 2016 and, ironically, it even posted record profits in 2022," says TS Lombard's Oneglia.

The analyst says in a new note the sell-off in Euro Area (EA) banks continues to appear more related to a lack of confidence than fundamentals.

Therefore, if correct, a real banking crisis in the Eurozone on the back of a Deutsche Bank failure is unlikely.

This should limit Euro downside.

"We still humbly lean towards the stance that recent bank concerns are related to a few idiosyncratic banks," says Kristoffer Kjær Lomholt, Director, FX and Rates Strategy at Danske Bank. "Systemic risk fears are overdone and that the general historical comparison is much more similar to the Savings and Loans crisis in the US of the 1980s than the Great Financial Crisis of 2007/08."

"If that analysis is right EUR/USD could face some near-term topside pressure," he adds.

Andrew Coombs, an analyst at Citigroup, said investors were trying to make sense of Friday's share price move, adding: "we view this as an irrational market."

"Investors are worrying about the health of the bank. We are relatively relaxed in view of Deutsche’s robust capital and liquidity positions," says Stuart Graham, Head of Banks Strategy at Autonomous Research. "We have no concerns about Deutsche’s viability or asset marks. To be crystal clear — Deutsche is NOT the next Credit Suisse."