US Stocks Gain as Global Regulators Boost Market Confidence Amid Financial Turmoil

March 21, 2023

The recent financial turmoil has led to speculation about a slower pace of tightening from major central banks. To shore up market confidence, regulators worldwide have rushed to take action, and global central banks have united with the Federal Reserve to ease access to supplies of the US currency.

Despite the banking turbulence, there has been no dash for dollars, indicating that the financial system may not be experiencing undue stress. Just a few weeks ago, investors were betting on the Fed raising rates to almost 6%, and the European Central Bank hiking past 4%. However, now the markets imply that the tightening cycles are almost over, and there are expectations for four rate cuts in the US by the end of the year. The overnight indexed swaps price in a 75% chance of a quarter-point hike by the Fed this week.

The S&P 500 benchmark saw all 11 groups gaining, and there was a decrease in the earlier flight-to-safety bid. A gauge of US lenders climbed after last week’s 15% rout. Despite missing out on a rebound by its regional peers led by New York Community Bancorp, UBS Group AG rose as investors focused on the upside of its Credit Suisse Group AG takeover.

On the other hand, the Nasdaq 100, which had the biggest weekly surge since November, underperformed as a recovery in risk appetite sent Treasuries slumping.

Main Pairs Movement

On Monday, the US Dollar experienced its third consecutive session of decline, with the DXY index showing strong bearish momentum throughout the day and closing just below 103.3 – the lowest level of the day. This drop is attributed to the rush to add liquidity to the monetary system, which is seen as a clear negative for the dollar and a sign of financial stress.

In contrast, the GBPUSD pair saw a significant gain of 0.86% on Monday, thanks to the overall weakness of the US Dollar. The pair continued to experience strong upside traction and saw fresh transactions during the European trading session. The EURUSD pair also managed to attract some buying interest during the late UK trading hour and gained 0.48% on Monday.

However, Gold prices saw a decline of 0.52% on Monday after reaching a year-high above the $2000 mark. This drop was attributed to investors trying to recover their optimism after concerns about global financial stability were triggered by various banks’ failures. The XAUUSD pair experienced strong pullback pressure, touching the daily low of $1966 during the early American trading session before regaining positive traction and trading around the $1980 mark.

Technical Analysis

EURUSD (4-Hour Chart)

On Monday, the EUR/USD pair saw a gain of 0.55%, as it continued to build on last week’s rebound from the 1.0520 mark, with the global risk sentiment turning positive. The weaker US Dollar across the board also contributed to the pair staying in positive territory. The market is now pricing in a smaller lift-off of 25 bps at the end of the two-day FOMC monetary policy meeting starting on Tuesday, due to the recent collapse of two mid-sized US banks.

The focus is now on the FOMC decision on Wednesday. In the Eurozone, European Central Bank (ECB) President Christine Lagarde said that inflation is projected to remain too high for too long, which acted as a tailwind for the shared currency.

From a technical standpoint, the RSI indicator currently stands at 61, suggesting that the chances are on the bulls’ side as the RSI rises toward the overbought zone. The Bollinger Bands also indicate that the price is climbing toward the upper band, suggesting that the upside momentum should persist. Therefore, it is expected that the market will be bullish as the pair heads towards testing the 1.0746 resistance line. Technical indicators also advance well above their midlines, supporting higher highs in the upcoming sessions.

Resistance: 1.0746, 1.0790

Support: 1.0637, 1.0542

XAUUSD (4-Hour Chart)

The XAU/USD pair paused its uptrend on Monday after advancing over 10% since March 8 and reaching the round $2,000 level. The pair retreated to $1,967 during the US trading session and is currently trading at $1,978, posting a 0.50% loss on a daily basis. The bearish pressure on the Gold price was due to the positive turn in the 10-year US Treasury bond yield near 3.5% following a sharp decline seen in the European session. The weekend announcement of UBS Bank’s acquisition of Credit Suisse in a historic $3.3 billion deal temporarily reassured investors and stabilized sentiment. However, the risk of contagion spreading across the broader banking sector still remains, leading investors to seek safe-haven assets like Gold.

From a technical standpoint, the RSI indicator currently stands at 75, suggesting that the pair could experience some short-term corrections as the RSI retreats from the overbought section. The failure of the price to climb higher and drop from the upper band in the Bollinger Bands also indicates that some downside movements can be expected. Therefore, it is expected that the market will be slightly bearish as long as the 1,996 resistance line holds. The chances of a new bear trend might start if the pair breaks below the 1,956 support.

Resistance: 1996, 2033

Support: 1956, 1933

Economic Data