Financial Markets React to Banking Turmoil and Cryptocurrency Surge

March 16, 2023

Following the recent collapse of several American regional banks and the Credit Suisse Group AG crisis, investors have begun to recall memories of the 2008 financial crisis. Speculation is rife that major central banks may need to provide liquidity support to financial regulators. As a result, the S&P 500 initially plummeted by over 2%. However, the decline was subsequently cut in half. Despite the release of the US Consumer Price Index (CPI) numbers and a rebound in US Treasury yields, the yield on 10-year Treasuries dropped by 22 basis points to 3.47%. Except for the Japanese yen, the dollar rallied against all other developed-market peers.

Meanwhile, Bitcoin continues to make sharp moves, peaking at $26,500, the highest since June 2022, before pulling back to $24,500. Gold and Silver moved sideways, holding onto most of Monday’s gains. This suggests that some investors may have more confidence in cryptocurrency than traditional currency.

In the benchmark, the S&P500 fell by 0.7% due to the banking turmoil rippling through financial markets. Only four out of eleven sectors remained in positive territory. Among all groups, the Communication Service and utility sectors delivered the best performance, surging by 1.5% and 1.34% respectively on a daily basis. The worst-performing sector was Energy, which dropped by 5.42%. USOIL reached its lowest point since 2022, at 68.54.

Main Pairs Movement

On Wednesday, the dollar experienced an upswing due to safe-haven buying. Credit Suisse’s recent stock drop has investors concerned about potential weaknesses in its financial reporting and the possibility of a global banking crisis. The DXY index gained momentum during the European trading session, reaching a daily high of 105.1 at the beginning of the US trading session.

GBPUSD experienced a sell-off after reports of internal “materialistic weaknesses” within Credit Suisse surfaced, causing market sentiment to plummet. The pair slumped during the UK trading hour but managed to find support at the 1.2010 level and rebounded to 1.2070 during the middle of the US trading session. On the other hand, EURUSD dropped significantly with losses of almost 2% during the UK trading hour, and closed the day with a 1.45% loss.

Gold buyers flexed their muscles around $1,920 after reaching the highest levels in 1.5 months following Credit Suisse’s weak financial reporting. The market’s risk profile worsened as the CS episode followed the latest fallout of Silicon Valley Bank (SVB) and Signature Bank. The XAUUSD gained bullish momentum during the UK trading session, climbing above the $1935 mark before losing traction and closing around the $1920 mark.

Credit Suisse’s impact on the market has significantly affected several key currency pairs and gold prices. This event highlights the importance of sound financial reporting and transparency in the banking sector to prevent future crises. It also underscores the need for investors to remain vigilant and informed in their decision-making processes.

Technical Analysis

EURUSD (4-Hour Chart)

The EUR/USD pair experienced a significant decline on Wednesday, marking its worst day in months and hitting a two-month low below the 1.0530 mark. Currently, the pair is trading at 1.0535, reflecting a daily loss of 1.83%. The negative trend continues due to renewed strength in the US Dollar and concerns about the banking sector. The intraday US Dollar rally of over 1% and banking concerns have had a major impact on the EUR/USD pair. The global risk sentiment also took a hit due to negative news about the Swiss lender Credit Suisse, which triggered a sell-off in banking shares worldwide. Additionally, mixed US economic data added to the dismal mood, with the February Producer Price Index (PPI) rising at an annualized pace of 4.6% and Retail Sales declining 0.4% in February. In the Eurozone, concerns about the European banking sector have heightened, leading to a flight-to-safety mood among market participants.

In terms of technical analysis, the RSI indicator currently stands at 32, indicating strong bearish momentum and the potential for the pair to extend its decline as the RSI is around 30. The Bollinger Bands suggest that the price has undergone heavy selling and has moved out of the lower band, suggesting a continuation of the downward trend.

In conclusion, we believe that the market sentiment for the EUR/USD pair will remain bearish, with the pair potentially testing the 1.0531 support level. Traders should remain cautious and keep an eye on any developments in the global banking sector, as well as any economic data releases that could impact the pair’s performance.

Resistance: 1.0624, 1.0745, 1.0791

Support: 1.0531, 1.0467

XAUUSD (4-Hour Chart)

Gold prices have dropped to a new intraday low of around $1,890, and remain stagnant during mid-week inaction while sticking to short-term key support. This is due to the recently widening difference between the US 10-year and two-year Treasury bond yields, which is affecting the XAU/USD price. The inability of global policymakers to convince the market of the risks emanating from the latest fallouts of the Silicon Valley Bank and Signature Bank is also exerting downside pressure on gold prices. Furthermore, the recent run-up in the Fed fund futures, favoring a 0.25% rate hike in March, has made the US dollar more solid, which has further weighed on gold prices.

Despite this, US data relating to Retail Sales, Industrial Production, and Producer Price Index showed that the odds favoring the downtrend have limited upside room for gold trades. At the time of writing, gold is trading at $1,932.

On the technical side, gold has found support above its 200 DMA at $1,775, and further support at the 55 DMA at $1,869. According to strategists at Credit Suisse, a weekly close above $1,890/1900 is needed to clear the way for a retest of $1,973/90. The RSI sits at 75 at the time of typing.

Resistance: 1924, 1947, 1956

Support: 1900, 1885, 1859

Economic Data