The US Dollar stumbled out of the gate today as investors sought safety in government bonds.
With global risk hampering markets, only a successful effort from both the Federal Reserve and Treasury Department could help revive sentiment for America’s currency.
Will it be enough to turn things around?
Although the US Dollar is taking a hit due to two banking giants entering receivership, authorities have swiftly stepped in with backstops aimed at containing any potential damage.
As investors examine various financial assets from credit default swaps to Argentinian bonds, Wall Street futures seem unfazed and are edging higher as they remain confident that current measures will be sufficient.
In response to recent economic instability, the Federal Reserve has stepped in with a new Bank Term Funding Program (BTFP) that provides loans of up to one year in length.
With this program and an assurance from authorities, depositors can rest assured their money is safe supported by Treasuries and agency debt plus collateralizing mortgage-backed securities.
The US government is taking action to ensure that depositors of SVB and Signature Bank are taken care of – not bondholders or stock investors.
President Joe Biden will provide further guidance on Monday regarding the situation, while his administration has already briefed Congress. This starkly contrasts with 2008 when bailouts were much more widespread.
In just a few days, the investment landscape has been dramatically transformed by this episode.
Before the blackout period kicked in, markets had predicted a 50 basis point interest rate increase for next week’s Federal Open Market Committee meeting now traders are leaning towards only 25 bp instead.
As such, estimations of what will be determined at that fateful gathering have also changed; where investors previously expected to see rates near 5.70% when all was said and done, they’re readjusting their outlook to around 5.13%.
What’s more is that while Wednesday saw an inverted 2s 10s yield curve with105bp gulf between them on both sides of the divide, it currently stands much closer together (-75bp) due to these dramatic fluctuations over recent days!
An unexpected banking crisis combined with the US Consumer Price Index (CPI) data released on Tuesday could have a greater impact than recent strong jobs numbers, causing Treasury yields to take an unprecedented dive.
If authorities are able to mitigate contagion risks in time, there may be hope that these diminished yields will find support – though this remains uncertain for now.
DXY/USD INDEX AGAINST TREASURY 2 AND 10 YEAR YIELDS
Natural Gas Outlook
With volatile swings in natural gas prices, traders are being kept on their toes. After enjoying a surge of gains, the market suddenly dropped nearly twenty percent!
After a brief period of upside movement, natural gas prices experienced an abrupt reversal last week; falling nearly 20% in the worst 5-day stretch since December.
Technically speaking, there is still more ground to cover for it to stay within its dominant bearish trend that was set by a Head & Shoulders chart formation back at the end of 2022 making support levels hold somewhere between 1.44 and 1.612 from 2020 lows if further downside arises down the line.
Could the market be headed for its February low once again?
Natural gas prices dove to their lowest level since late February last week and were unable to break through the 50-day SMA. To complicate matters, a key area of support at 1.967 from earlier this month stands in its path.
If broken, it could extend an ongoing downtrend; otherwise any gains would be capped by a 23.6% Fibonacci retracement point up at 3.2973 leaving markets stuck between bearishness and bullish hopes for now!
As we dive deeper into the 4-hour chart, it’s clear that there are two potential scenarios waiting to unfold in the coming week. If a bearish Rising Wedge is broken, then prices could continue their downward trek.
However if an underlying bullish Falling Wedge pattern succeeds and we see a breakout above 3.027 marking an all-time high then this could signal good news for investors ahead with further gains likely on offer provided momentum stays strong above 100 SMA levels.
Financial markets across the world tumbled this past week amidst a decrease in global risk appetite.
With U.S.-based SVB Financial going under and Silvergate Capital Corp scaling back operations, Treasury yields followed suit as investors lowered their expectations for the Federal Reserve’s hawkishness.
Wall Street saw a drop of nearly 5%, while European exchanges experienced losses close to 3%.
Down Under wasn’t exempt either, with Australia’s ASX 200 index declining by 1.91% and Hong Kong seeing its Hang Seng fall 6-7%.
The collective selloff reignited fears that current market trends could be reversing course soon worries reminiscent of those before last year when shares around the globe stumbled out at an alarming rate due to geopolitical unrest or economic slowdown apprehensions
Last week’s events have markets in a frenzy over monetary policies. A 50-basis point rate hike this month appears unlikely, and yet the market is pricing in for a 25 basis points move by year end.
Gold prices enjoyed some good news as it saw its largest jump of 2.06% on Friday since November 10th; however sentiment linked crude oil didn’t fare so well amidst all the anxiety prevalent across global markets that being said with VIX ‘fear gauge’ shooting up 34%, highest surge seen since January 2022 .
It remains to be seen if SVB Financial’s collapse causes any further reactions but one thing is certain: This could be the fastest tightening period experienced globally leading to unprecedented economic unrests along with fears of unknown outcomes!
This week, traders’ eyes will be on the health of US banking and a variety of economic events. Further, we’ll get crucial insights from the February US CPI report while The European Central Bank rate decision is also anticipated to make waves in markets.
Looking Down Under, AUD/USD watchers eagerly await an upcoming local jobs report with bated breath – what other surprises could lay ahead?
The pound has been on a weakened trajectory, but the Cable rate has been cushioned from further decline by the USD sell-off.
Next week’s Spring Statement from the Chancellor of the Exchequer could steer sterling in any direction, making for increased volatility.
The US Dollar Index (DXY) ended last week with mixed results from Friday’s data releases. Nevertheless, bulls remain confident as strong bullish structure holds above 104.30.
Gold prices skyrocketed this past week, buoyed by its 100-week Moving Average at $1,813. XAU/USD may reach $1,880 if bulls can continue their upward push.
Bank sector contagion woes sent the S&P500 and other indices tumbling last week and cause technical weak points going into the new trading session.
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