Market Mood Improves As Banking Fears Ease

March 28, 2023

By ForexTime 

European markets flashed green on Tuesday along with Asian equities as fears over a looming banking crisis eased.

A deal backed by U.S regulators for First Citizens Bank to purchase failed Silicon Valley Bank (SVB) has boosted global sentiment and cooled jitters over the banking sector. The renewed appetite for risk is likely to stimulate demand for global equities at the expense of safe haven assets. However, some caution still lingers from the recent market chaos and this could encourage investors to think twice before jumping on the risk train. U.S futures are pointing to a mixed open as market players await the Senate hearings on Silicon Valley Bank. Looking at commodities, gold struggled to nurse wounds from Monday’s selloff as easing bank fears dulled its allure.

This week, financial markets will focus on key inflation figures from across the globe, speeches by Fed officials, and the U.S Senate hearings on Silicon Valley Bank. Although some normality seems to be returning to markets, this could easily be disrupted by negative news or data that rekindle concerns not only over the banking sector but also inflation.

More Pain Ahead For USD?

The past few weeks have not been kind to the dollar.


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It has weakened against most G10 currencies since the start of March thanks to growing expectations around the Federal Reserve slowing and eventually halting rate hikes in the face of the banking turmoil. Although fears of a full-blown crisis have cooled, markets still expect the Fed to cut its benchmark rates by 50 basis points by September.

These expectations could be intensified by the upcoming hearings on Silicon Valley Bank’s collapse and U.S inflation data on Friday. If the mid-week hearings before the House and Senate reveal fresh information on the chaos witnessed in the U.S banking sector, this could rekindle contagion fears, ultimately hitting the dollar as rate cut expectations mount. Regarding the inflation data, the Core PCE Deflator for February is expected to show inflation rising 4.7%, which would match January’s annual figure. Ultimately, a report that meets or prints below forecasts could fuel speculation around the Fed’s next move being a rate cut. Although the path of least resistance for the dollar is starting to point south, hawkish commentary from Fed officials could limit downside losses.

Currency spotlight: EURUSD

It could be a wild week for the EURUSD due to high-risk events and key inflation data.

The currency pair has kicked off the week on a positive note, pushing higher thanks to a weaker dollar. Given how the looming US Senate hearings and speeches from Fed officials mid-week will influence the dollar, this could translate to more volatility in EURUSD. Things could really spice up on Friday due to inflation data from the eurozone and the United States. Headline eurozone inflation is expected to fall sharply in March to 7.1% from 8.5% seen in the previous month. But the ECB is more focused on the core readings, so if these decline, this may weaken the euro as investors ponder whether the ECB may pause rate hikes down the road.

Looking at the technical picture, the EURUSD has the potential to push higher towards 1.09 if a solid daily close above the 1.08 level is achieved. Should bulls run out of steam, prices may slip back towards 1.0750 and 1.0710, respectively.

Commodity spotlight – Gold

Investor appetite for gold has been dampened by a combination of technical and fundamental forces.

After kissing the psychological $2000 level three times last week, bears have exploited this stubborn resistance to attack, with easing banking fears further dulling the metal’s safe haven allure. While prices could trade lower in the shorter term to medium term, the longer term still remains in favour of bulls due to expectations around the Fed cutting interest rates in September.

Looking at the technical picture, gold seems to be experiencing a pullback after failing to conquer the $2000 level. This could see the precious metal dip once again towards $1955 and $1935 before the bulls re-enter the scene. If prices break below $1925, gold is likely to test $1900.


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