official Market Update by Solidecn.com

[Solid ECN]

EURUSD

 

ECB to announce rates at 1:15 pm GMT, markets split between +25 and +50 bp

 

The European Central Bank is scheduled to announce the rate decision today at 1:15 pm GMT with ECB President Lagarde holding a post-meeting press conference at 1:45 pm GMT. Economists surveyed by Bloomberg and Reuters point to a 50 basis point rate hike but those surveys may be outdated already and do not reflect real expectations, following latest turmoil in the banking sector. Let's take a look at today's decision!

 

What's priced in?

Economists expected the European Central Bank to hike rates by 50 basis points today, putting the deposit rate at 3.00% - the highest level since late-2008. Such an outcome is expected by 55 out of 56 economists in a Bloomberg poll. Deutsche Bank is the only one predicting a 25 basis point move. However, it should be said that Deutsche Bank changed its forecast to 25 basis points as recently as yesterday amid a turmoil in the European banking sector. As money markets are much quicker to react to developments in financial markets than economists, a look at market pricing for today's meeting may offer a better picture. Markets currently price in around 40% chance of a 50 basis point rate hike and around 60% chance of a 25 basis point rate move.

 

 

Money markets are 60-40 split between a 25 and 50 basis point rate hike at today's meeting. 

 

How things changed after SVB-CS turmoil

Disconnect between economists' expectations and money market pricing is quite massive and it is easy to pinpoint the reason behind it - turmoil in the US and European banking sectors. While market participants were not too concerned about the ECB abandoning the plan to hike by 50 basis points, things changed this week as contagion fears spread to Europe with Credit Suisse shares freefalling yesterday. This has led to a massive drop in rate hike expectations with a chance of 50 basis points rate hike dropping from almost-100% to around-40%! 

 

 

Markets were almost fully pricing in a 50 basis point rate hike at today's meeting as recently as a week ago! 

 

ECB faces dilemma amid Credit Suisse turmoil

Turmoil in the European banking sector is causing a dilemma for the ECB - should it press on with significant rate hikes in an attempt to get inflation control even if it risks triggering a European banking crisis? This is a tricky choice to make.

 

On one hand, Credit Suisse managed to get assurances from the Swiss National Bank and Swiss regulator that it will receive support should the situation require. Credit Suisse announced that it intends to exercise an option to borrow an additional 50 billion CHF from Swiss National Bank via a covered-loan facility in order to improve its liquidity position. This led to relief on the market and an over-30% jump in Credit Suisse shares so far today.

 

On the other hand, support from SNB does not mean that woes for Credit Suisse are over. It is not a secret that Credit Suisse has been involved in some of recent high-profile market scandals, like Archegos or Greensill scandals. It looks like there may be some significant compliance and risk management flaws in the Swiss bank and it is having a negative impact on investors' confidence in the bank. While support from authorities helped ease concerns for now, another worrying piece of news on Credit Suisse may see troubles and market turmoil reignite.

 

Cautious message from Lagarde looks likely

Having said that, a cautious decision today if made, like hiking by just 25 basis points or even holding rates unchanged, should not come as a surprise. It will likely trigger dovish reaction on the markets (EUR down and equities up) given that expectations are split between +25 and +50 bp move. However, the accompanying statement is likely to be very cautious. ECB President Lagarde will face questions on banks' condition during the press conference but it looks highly likely that she will play down current risks, applaud actions by Swiss authorities and hint that ECB needs to better understand the situation and reasons behind it before making any response. She is also likely to be prudent when making statements on future policy moves and refrain from making clear comments on the size of rate hikes as she did last month when she strongly hinted that a 50 basis point rate increase is coming at the March meeting.

 

It should also be noted that it will be a quarterly ECB meeting and it means that a new set of economic projections will be released. Those are likely to point to lower headline inflation in the months ahead while core price growth is expected to be little change compared to previous forecasts.

 

A look at the markets: EURUSD and DE30

EURUSD slumped yesterday as banking sector woes spread across the Atlantic. The pair tested a short-term upward trendline but bulls managed to defend it. A point to note is that this trendline can be seen as the neckline of the head and shoulders pattern with the shoulderline being in 1.0740. A dovish ECB could see that pair erase today's daily gains and slump below the trendline. This would pave the way for a deeper drop.

 

 

Markets were almost fully pricing in a 50 basis point rate hike at today's meeting as recently as a week ago!

 

ECB faces dilemma amid Credit Suisse turmoil

Turmoil in the European banking sector is causing a dilemma for the ECB - should it press on with significant rate hikes in an attempt to get inflation control even if it risks triggering a European banking crisis? This is a tricky choice to make.

 

On one hand, Credit Suisse managed to get assurances from the Swiss National Bank and Swiss regulator that it will receive support should the situation require. Credit Suisse announced that it intends to exercise an option to borrow an additional 50 billion CHF from Swiss National Bank via a covered-loan facility in order to improve its liquidity position. This led to relief on the market and an over-30% jump in Credit Suisse shares so far today.

 

On the other hand, support from SNB does not mean that woes for Credit Suisse are over. It is not a secret that Credit Suisse has been involved in some of recent high-profile market scandals, like Archegos or Greensill scandals. It looks like there may be some significant compliance and risk management flaws in the Swiss bank and it is having a negative impact on investors' confidence in the bank. While support from authorities helped ease concerns for now, another worrying piece of news on Credit Suisse may see troubles and market turmoil reignite.

 

Cautious message from Lagarde looks likely

Having said that, a cautious decision today if made, like hiking by just 25 basis points or even holding rates unchanged, should not come as a surprise. It will likely trigger dovish reaction on the markets (EUR down and equities up) given that expectations are split between +25 and +50 bp move. However, the accompanying statement is likely to be very cautious. ECB President Lagarde will face questions on banks' condition during the press conference but it looks highly likely that she will play down current risks, applaud actions by Swiss authorities and hint that ECB needs to better understand the situation and reasons behind it before making any response. She is also likely to be prudent when making statements on future policy moves and refrain from making clear comments on the size of rate hikes as she did last month when she strongly hinted that a 50 basis point rate increase is coming at the March meeting.

 

It should also be noted that it will be a quarterly ECB meeting and it means that a new set of economic projections will be released. Those are likely to point to lower headline inflation in the months ahead while core price growth is expected to be little change compared to previous forecasts.

 

 

A look at the markets: EURUSD and DE30

EURUSD slumped yesterday as banking sector woes spread across the Atlantic. The pair tested a short-term upward trendline but bulls managed to defend it. A point to note is that this trendline can be seen as the neckline of the head and shoulders pattern with the shoulderline being in 1.0740. A dovish ECB could see that pair erase today's daily gains and slump below the trendline. This would pave the way for a deeper drop.

 

 

[Solid ECN]

EURUSD

Media reports surfaced saying that ECB officials told at a meeting with European ministers yesterday that some of European banks could be vulnerable amid SVB-Credit Suisse turmoil. Headlines triggered a slump on EUR market as well as European stock market indices. EURUSD dipped back below 1.06 mark while DE30 attempts to take out daily lows near 14,750 pts.

 

 

EURUSD dipped below 1.06 on media reports that ECB sees some European banks as vulnerable.

 

[Solid ECN]

NATGAS

US gas stocks are down 58 bcf (61 bcf decline expected, and previous decline of 84 bcf). NATGAS reacted on data with slight declines. Key support is near 2.45 USD for MMBTU.

 

[Solid ECN]

USDJPY

• US indices finished yesterday's session higher  as a rescue package for First Republic Bank eased market concerns about another bank failure in the US. S&P 500 rose 1.76%, Dow Jones added 1.17% and Russell 2000 jumped 1.38%. Nasdaq outperformed and managed to finish 2.48% higher
• Indices from Asia-Pacific traded higher today - Nikkei rose 1.10%, S&P/ASX 200 moved 0.48% higher while Kospi and Nifty 50 gained 0.60% and 0.25% respectively. Indices from China traded higher as well
• DAX futures point to a higher opening of today's European cash session
• First Republic Bank reportedly exploring potential sale, according to Fox Business
• US Treasury Secretary Yellen told senators that government refunds of uninsured deposits will not be extended to every bank that fails, only those that pose systemic risk to the financial system
• Fitch believes that recent developments in US will not cause major shifts in US monetary policy
• S&P affirms US at AA+; with Outlook Stable pointing to continued economic resilience
• MUFG analysts said US inflation data remained elevated enough to justify FED 25bp rate hike next week
• Goldman Sachs expects ECB to hike rates by 25 bps in May
• Japan Economy Minister Goto doesn't expect a big impact on Japan's economy from US banking sector issues
• Cryptocurrencies are trading higher today - Bitcoin jumped over 4.0% and is testing 26,000 mark, while Ethereum advances more than 2.0%
• Energy commodities are trading mixed - oil rose 0.3% while US natural gas prices fell 0.8
• Precious metals trade higher today - silver jumped 1.4%, gold adds 0.7%
• AUD and NZD are the best performing major currencies while USD and CAD lag the most

 

USDJPY pair pulled back to major support at 133.00, which coincides with 38.2% Fibonacci retracement of the upward wave launched in January 2021.

 

[Solid ECN]

USDCHF

USDCHF pair provided clear negative trades yesterday, and begins today with new decline to attempt to break 0.9260 level again, reinforcing the expectations of continuing the bearish trend in the upcoming sessions, reminding you that our waited targets begin at 0.9150 and extend to 0.9060.

 

 

Stochastic provides negative signals that support the continuation of the expected decline, reminding you that the continuation of the bearish wave depends on the price stability below 0.9316.

 

[Solid ECN]

Bitcoin

Cryptocurrencies are enjoying another day of strong gains with BITCOIN rallying over-7% and looking towards the $27,000 mark. The most popular coin took out a local high from Tuesday today and reached a fresh 9-month high. While cryptocurrencies performed poorly between mid-February and early-March, the digital asset market took a U-turn this week. Actions of US authorities aimed at stemming contagion risk from collapse of tech- and crypto-related banks, triggered a rally on cryptocurrencies market. Bitcoin is currently trading over 35% above a local low reached as recently as a week ago on March 10, 2023. Solid gains have been all across the cryptocurrency market this week.

 

 

A number of cryptocurrencies rallied over-20% over the past week! Taking a look at the BITCOIN chart at D1 interval, we can see that the coin has not only fully recovered from the February 21 - March 10 sell-off but has even jumped noticeably above mid-Friday's peak in the $25,000 area. Coin is closing in on a $27,000 mark. Near-term potential resistance levels to watch are marked with lower and upper limits of a short-term trading range from May and June 2022 at $29,000 and $31,500, respectively.

 

 

[Solid ECN]

EURUSD

Industrial production in the US remain unchanged at 0.0% in February, below market consensus of a 0.2% MoM rise.

EURUSD is rather unimpressed by today's  data. The pair continues to trade around 1.0620 level.
 

[Solid ECN]

GBPCHF

Fed is not the only major central bank scheduled to announce a monetary policy decision next week. Investors will also hear from the Bank of England and Swiss National Bank, both decisions on Thursday. The former is expected to deliver a 25 bp rate hike. However,  interest rate futures are pricing a 40% probability that rate will remain unchanged. At the same time SNB is in a tough situation, taking into account elevated inflation and uncertainties surrounding Credit Suisse. Investors expect a more dovish approach from Swiss policy makers. Market now expects only a 25 bp rate hike, while at the beginning of the month a 75 bp move was priced in.

[Solid ECN]

EURUSD

The EURUSD pair shows calm positive trades to gradually towards our waited target at 1.0745, getting good support by the EMA50, to keep the bullish trend suggested for the upcoming period.

It is important to monitor the price when reaching the targeted level, as breaching it will extend the bullish wave to reach 1.0920 areas as a next main station, while consolidating against the bullish wave will press on the price to rebound bearishly to test the minor support areas around 1.0635 initially. On the other hand, we should note that breaking 1.0635 will stop the expected rise for today and push the price to turn to decline to visit 1.0515 level as a first station.
 

[Solid ECN]

GBPUSD 

The GBPUSD pair provided new positive trades to test 1.2200 barrier, waiting to get positive motive that assists to push the price to continue the price and achieve our positive targets that start at 1.2260 and extend to 1.2440 after surpassing the previous level.

The EMA50 continues to support the expected bullish wave, which depends on the price stability above 1.2060, as breaking it will put the price under negative pressure that targets testing 1.1940 before any new attempt to rise.
 

[Solid ECN]

Gold 

Precious metals gain amid increase in risk-aversion and pullback in US yields

Strong upward move launched on the gold market on March 8, 2023 is continuing at the beginning of a new week. Risk-off moods can be spotted on the financial markets at the beginning of a new week and it is providing support for safe haven assets, like for example gold. UBS will buy troubled Swiss lender, Credit Suisse, in a government-brokered deal. However, this failed to ease market concerns as the deal will include write down of Credit Suisse's AT1 bonds and this may turn out to be a hit to banks and other institutions with exposure to Credit Suisse. Apart from that, Fed and 5 other central banks (ECB, BoJ, BoE, BoC and SNB) will switch from weekly to daily USD swap auctions in order to boost USD liquidity. US yields pulled back providing even more support for precious metals.

As a result of those market moves, gold is trading over 1% higher on the day. Gold price climbed above $2,000 per ounce this morning, reaching the highest level since March 2022. 
 

[Solid ECN]

Oil

Oil launched a new week's trading lower amid an overall increase in risk aversion. WTI drops below $65 per barrel and trades at the lowest level since November 2021! Declines accelerated after price dropped below a key $70-72 price zone last week. The $60-65 area is a demand zone marked with local lows from 2021 and local highs from 2019 and 2020.

 

There are few reasons behind a drop in oil prices:

• Concerns over conditions of banking and financial systems in the United States and Europe. UBS will acquire Credit Suisse but it failed to ease market concerns
• Demand in China remains weak - imports stay low, run rates in refineries drop but at the same time Chinese exports of oil derivatives are increasing, what may hint at oversupply in the country
• Lack of interest from speculators - end-February data shows oil being extremely net oversold by speculators
• Goldman Sachs - one of the world's largest institutional bulls when it comes to oil - slashed Brent price 12-month ahead forecast from $100 to $94 per barrel

 

WTI (OIL.WTI) drops below $65 per barrel. Price dropped to a key zone, marked with local highs and lows from previous years, as well as with the range of two largest downward impulses in recent year (2014 and 2020).

[Solid ECN]

EURUSD

Euro continues to recover against the dollar at the beginning of this week, after a sharp crash in the last week - that was motivated by the worries around Credit Suisse that put the European banking sector under pressure and heavily penalized the euro.

 

Daily Time Frame EUR/USD

• On the daily chart, we can see that the price is once again testing the upper limit of the range, close to 1.0695.
• This will be a decisive zone for the price to understand the next momentum in the currency pair.

 

Dollar Index Daily Time Frame

• On the dollar index chart, we can see that the bullish movement slowed down after the price tested the 50 period exponential moving average (EMA).
• As long as the price remains below this zone, we should expect the bearish movement to continue over the next few sessions.

 

• USD index, Daily time frame chart. 
• JPY leads the gains this trading session.

 

[Solid ECN]

DE30

European indices had a poor start to a new week with major indices from the Old Continent launching today's cash trading session with significant bearish price gaps. This came after a government-brokered deal for UBS to acquire Credit Suisse failed to shore up market sentiment. Issue of Credit Suisse's AT1 bonds being written down to zero sparked concerns that it may be a problem for banks and financial institutions with exposure to those bonds. However, indices began to regain ground as the session progressed and all of the earlier losses have been erased already. Indices from Western Europe trade 0.5-1.0% higher on the day with German DAX adding 0.7% and French CAC40 jumping 0.9%.

 

 

Taking a look at the DE30 chart at H4 interval, we can see that another attempt at breaking below the 14,750 pts support zone was made today and once again it turned out to be a failure. Index caught a bid later on and rallied towards the psychological 15,000 pts mark. While the index managed to break above this hurdle, bulls failed to break above the 15,050 pts swing area. However, the index remains close to this resistance and another attempt to break above it later into the day cannot be ruled out.

 

 

[Solid ECN]

US30

• European indices erased early losses and finished today's session higher, with Dax up 1.12% as investors continued to monitor risks to the European banking sector. Credit Suisse was purchased by its competitor UBS, and global central banks' took several actions to boost dollar liquidity. 
• ECB President Lagarde said that Eurozone banks have capital and liquidity levels well beyond their requirements. Without the tensions, policymakers would have indicated that additional hikes were required. 
• The government of French President Emmanuel Macron survived a no-confidence vote by nine votes
• The Dow Jones and the S&P 500 gain 0.9% and 0.75% respectively while the Nasdaq is trading around the flatline despite lingering risks of the banking crisis. Traders now await the highly-anticipated 2-day FOMC meeting to kick off tomorrow. 
• First Republic Bank stock plunged 40.0%, extending recent heavy losses, after S&P downgraded the bank deeper into junk status and said the recent $30 billion cash infusion may not be enough to solve its liquidity problems. Buyers managed to erase some losses on news that JPMorgan Chase is advising First Republic Bank on strategic alternatives, one of which is capital raise which could dilute current shareholders. A sale of the bank is also taken into consideration.
• OIL.WTI briefly dropped to $64.50 which was the lowest level since early December 2021, only to erase all of the losses in the evening as moods improved a bit. Natgas price fell 5.0% and is testing support at $2.22 as average US gas demand, including exports, is expected to fall to 108 bcfd this week from 116.9 bcfd last week due to milder weather.
• Precious metals are trading higher amid a lower dollar. Gold jumped to one-year high at $2012 at the beginning of European trading as Credit Suisse bond write down fueled demand for safe haven assets. However almost all of the gains have been reversed later in the session. Silver pulled back from local resistance at $22.70. 
• The winner of today's FX session is the British pound, which strengthened over 0.8% against the dollar. GBPUSD pair managed to break above  February 14 highs and now oscillate above the 1.2270 level.
• The dollar index dropped below 103.5, extending losses for the 3rd session as investors anticipate that the Fed might not hike rates as much as previously thought because of the banking crises. Not long ago, a 50 bp hike was expected, while currently markets expect at 25 bp hike or even a pause of the tightening process. 
• Bitcoin pulled back from 9-month high at $28,500 and is currently testing local support at $28000. Nevertheless recent turmoil of the banking sector supports digital assets and as long as current sentiment prevails crypto bulls seem to have an advantage. The key support for the most popular cryptocurrency is located around the $25,000 mark and only a break below would point to resumption of downward move.

 

USDJPY currency pair has been moving in a downtrend recently. Looking at the H1 interval, buyers launched a small upward correction. If the bullish momentum gains steam, EMA100  (blue line) should be treated as the nearest resistance. In case of break higher, upward impulse may accelerate towards crucial resistance around 133.30, which is marked with the upper limit of the 1:1 structure and 38.2% Fibonacci retracement.

[Solid ECN]

AUDUSD

Yesterday's trading on Wall Street and in Europe ended higher, making up for losses from earlier in the day initiated by the uncertainty surrounding the takeover of Credit Suisse by UBS. Better sentiment fueled Asian markets today. Stock exchanges in Japan are closed due to a national holiday.

• AUDUSD pair breaks back below the 0.6700 level. The case for a pause in the rate hike cycle by the RBA at its 4 April meeting has strengthened. According to the RBA minutes released today, the Board agreed to reconsider the case for pausing rate hikes and to closely examine incoming data from the economy.
• The ECB's Holzmann is softening his previous calls for three consecutive 50 basis point rate hikes.
• From the US, there was some news affecting the stock market. The US Treasury is looking at unlimited deposit guarantees (via the FDIC) if the banking crisis worsens.
• On the political front, investors are looking at the Putin-Xi meeting in Moscow, which may bring new threads in the realm of the Ukraine conflict and other geopolitical-economic relations.
• PIMCO lost $340 million on the redemption of Credit Suisse Bank's AT1 bond. Lawyers from Switzerland, the United States and the United Kingdom are talking to Credit Suisse's AT1 bondholders about possible legal action after up to $17 billion in losses related to the redemption.
• Goldman Sachs commented on the current state of the equity market this way - "valuations don't look particularly attractive".
• Bill Ackman, founder and hedge fund manager of Pershing Square Capital commented that the FOMC should consider holding off on rate hikes for tomorrow's Committee decision. Today marks the start of the Fed's two-day meeting in Washington.  
• Citi predicts a 25bp rate hike on Wednesday, and notes that the tone of the press conference will now be particularly important.
• Citadel and Trafigura traders believe that the turmoil in the banking market is temporary and unlikely to cause far-reaching perturbations in the global economy. Demand for oil should strengthen. 

 

Quotations:
Futures in Europe point to a bullish opening to the session on the Old Continent. US contracts are also gaining, however the scale of the increases is minimal. On the FX market, the USD is currently performing best. NZD and AUD are the worst performers. Energy commodities are down, extending the wave of uncertainty in the economy. Gold and silver are correcting recent gains and recording slight declines. Bitcoin is currently losing 0.4 per cent and slipping towards $27,800.

The AUDUSD pair is currently trading in a structure bounded by important support and resistance levels. The upcoming FOMC decision and ongoing banking uncertainty could create additional volatility on the pair.
 

[Solid ECN]

US500

The key event of the month, the FOMC interest rate decision, is ahead of us. Although the Fed's decision is always referred to as the event of the month, tomorrow's decision will be even more closely scrutinized by the market due to the lingering spectre of the banking crisis in the background. The mood on Wall Street is a veritable rollercoaster at the moment, but let us try to take a look at where the US500 benchmark has been moving and what might happen in the coming days.

 

As we can see on the chart of the US500 contracts on the D1 interval attached below, the instrument's quotations have been moving in a very interesting technical structure for almost 2 years. The US500 broke out above the long-term downtrend line and successfully defended its outer extension, which encouraged the bulls to rise. However, we are inexorably approaching the next limitation, namely the resistance set by the uptrend initiated in the last quarter of 2022. 

 

 

What will happen next? To answer this question, we need to consider the factors that are shaping current market sentiment, namely tomorrow's FED decision and the specter of a banking crisis. At the moment, the money market is pricing in an 83.4% chance of a 25 basis point hike, which seems market neutral at the moment. However, the key factor will be Powell's comments after the meeting regarding the hike cycle in the context of banking uncertainty. The risk of worsening problems in the sector will go a long way to curbing the hawkish enthusiasm of the Fed, which, remember, is in an advanced stage of tightening and seeing positive developments in the economy, such as last week's good PPI inflation reading.  Today, equity market sentiment was bolstered by further comments from the US Treasury, which was reported to be looking at providing unlimited deposit guarantees (via the FDIC) if the banking crisis worsens. In the event of a dovish FED, stock markets could eagerly extend the current upward momentum and break out above resistance near 4080 points. On the other hand, if the FED maintains a firm monetary stance, a downward impulse could be initiated towards support near 3870 points.

 

[Solid ECN]

ZEW Sentiment Index Below Expectations

• 10:00 am GMT - Germany, ZEW sentiment index for March. Actual: 13.0. Forecast: 15.0. Previously: 28,1
• Current conditions: Actual: -46.5. Forecast: -44.3. Previously: -45.1
• ZEW says the international financial markets are under strong pressure. Assessment of the earnings development of banks and insurance sector have deteriorated considerably.

 

DE30 did not react to the below expectation reading of the ZEW index.

 

[Solid ECN]

USDCAD

12:30 am GMT - Canada, CPI inflation report for February. 

• Headline. Actual: 5.2% YoY. Forecast: 5.4% YoY. Previously: 5.9% YoY
• MoM. Actual: 0.4%. Forecast: 0.6%. Previously: 0,5%
• Core. Actual: 4.7% YoY. Forecast: 4.8% YoY. Previously: 5.0% YoY
• Core MoM. Actual: 0,5%. Previously: 0,3%

 

The USDCAD pair gained slightly shortly after Canada's CPI inflation reading.

[Solid ECN]

EURUSD

US home sales data for February was released at 2:00 pm GMT today and it turned out to be a massive beat. Data came in at 4.58 million, up from 4.00 million in January and significantly above 4.20 million expected by the market. The release trigger an uptick on equity markets with S&P 500 (US500) reaching a fresh daily high near 4,030 pts. USD, on the other hand, was muted with EURUSD barely moving in the first minutes following the release.

US home sales data for February was released at 2:00 pm GMT today and it turned out to be a massive beat. Data came in at 4.58 million, up from 4.00 million in January and significantly above 4.20 million expected by the market. The release trigger an uptick on equity markets with S&P 500 (US500) reaching a fresh daily high near 4,030 pts. USD, on the other hand, was muted with EURUSD barely moving in the first minutes following the release.