US Equity Market Drops Amid Banking Sector Rout and Economic Data

March 10, 2023

On Thursday, the US equity market took a turn for the worse as concerns grew over trouble in the banking sector and investors braced for Friday’s payrolls report. Weekly jobless claims, released on Thursday, surpassed expectations and marked the first time claims had risen above 200K since early January. Stronger-than-expected figures in Friday’s monthly jobs report could lead to a bigger hike at the March 21-22 Fed meeting, which may adversely impact the global stock market. Additionally, cryptocurrencies, including Bitcoin, slid significantly as a result of Silvergate’s meltdown.

The S&P 500 benchmark fell to its lowest level since January 19th, with financial companies in the index experiencing a drop of over 4%. The KBW Bank Index, which includes regional lenders, suffered a 7.7% plunge. The banking sector faced increased scrutiny in Washington after Silvergate Capital Corp. collapsed overnight, leading to a record drop in SVB Financial Group’s stock following a sale to mitigate losses. The Nasdaq 100, Dow Jones Industrial Average, and MSCI world index also experienced declines, with drops of 1.8%, 1.7%, and 1.2% respectively for the day.

Main Pairs Movement

The US dollar experienced a decline after suffering its largest daily loss in a week. This can be attributed to a sense of caution ahead of upcoming US data and downbeat early signals for NFP, which weighed on the greenback. Throughout Thursday, the DXY index continued to trend downward, ultimately falling by 0.38% for the day.

In contrast, GBPUSD saw a significant uptick, gaining 0.68% in a single day, marking its biggest daily jump in over a week. This rise was fueled by strong momentum amid a weaker US Dollar across the board, as well as anticipation for key statistics from both the UK and the US. Similarly, EURUSD also saw an upward trend, gaining 0.34% on a daily basis.

Gold prices rebounded on Thursday, registering the biggest daily gains of the week at 0.95%. This can be attributed to softer US treasury bond yields, as well as investor caution ahead of Nonfarm Payrolls. During the Thursday trading session, XAUUSD managed to climb from $1812 to $1830.

Technical Analysis

EURUSD (4-Hour Chart)

On Thursday, the EUR/USD pair continued to gain momentum, maintaining its recovery trend and holding above the 1.0570 level, with a daily gain of 0.33%. The weaker US Dollar across the board, combined with trader cautiousness ahead of the US Non-farm Payrolls release on Friday, led to a moderate pullback in the greenback and supported the EUR/USD pair. However, the US Weekly Initial Jobless Claims, which came in worse than the market expectation, indicating a cooling labor market, could limit the downside for the US Dollar as hawkish Fed expectations remain. In the Eurozone, employment-related figures are relevant before the release of the February Nonfarm Payrolls report on Friday.

From a technical perspective, the RSI indicator suggests that the pair is picking up some upside traction, while the Bollinger Bands show the price maintaining its upside momentum, moving toward the moving average. The market is expected to remain bullish as the pair tests the 1.0580 resistance line, with sustained strength above this level potentially leading to additional gains.

Resistance: 1.0580, 1.0685, 1.0790

Support: 1.0531, 1.0508, 1.0461

XAUUSD (4-Hour Chart)

Despite positive data on job openings and a strong ADP report on Wednesday, the XAU/USD pair continued to rise, reaching a two-day high above the $1834 mark due to a decrease in US Dollar demand. At the time of writing, the Gold price is trading at $1,830, representing a 0.91% increase on a daily basis. However, the higher-than-expected US Jobless Claims for the week ending March 4 may ease the tightness of the labor market and reduce the pressure on the Federal Reserve. The market will now focus on the closely-watched monthly jobs data from the United States, known as NFP, which is set to release on Friday. A weak US Nonfarm Payrolls report, along with high unemployment claims, may decrease the Federal Reserve’s need to tighten conditions at a faster pace.

From a technical perspective, the RSI indicator shows a figure of 53, indicating that the upside is more favored as the RSI has turned slightly north within neutral levels. In addition, the price has maintained its upside traction and crossed above the moving average, which suggests that the uptrend should continue. In conclusion, we believe the market will be slightly bullish as the pair heads towards testing the $1,838 resistance level. On the downside, if sellers take control and the price falls below the $1,808 support level, a downside move toward the $1,792 level cannot be ruled out.

Resistance: 1838, 1856, 1889

Support: 1808, 1792, 1776

Economic Data