The US banking crisis remains a key factor for markets
- Yellen is prepared to take further action: US banking regulators can engage depositor rescues if necessary.
- JPY is outperforming: The safe haven JPY is strong today, with USD also outperforming on major forex.
- Equities struggle for support: US futures have come off earlier highs, whilst European indices falling away.
- Metals and oil are mixed: In commodities, gold and silver are fluctuating around flat, with oil a shade higher.
The focus remains on US banking concerns
Developments in the US banking crisis are now near constant newsflow that is impacting moves on major markets.
Treasury Secretary Janet Yellen (also a former Fed Chair) has once more been looking to settle the nerves.
On Wednesday, Yellen had caused concern as she commented to a congressional committee that it would require legislation in Congress to cover all depositors.
On another appearance before Congress yesterday she clarified that US regulators could rescue individual banks (as they did with SVB and Signature Bank).
This development has looked to settle the nerves.
Worryingly, elevated emergency borrowing from the Fed continues
Despite Yellen’s reassurances, the issues with the US banking crisis are not going away in a puff of smoke.
Data from the Federal Reserve showed that the Federal Reserve emergency lending to banks remained massively elevated in the last week.
- In the first week after the banking crisis kicked off, lending was a record c. $153bn.
- This week it was c. $110bn.
With central banks also leaning on the Fed for $60bn, banks in the US and around the world are relying on the Federal Reserve for USD liquidity (i.e. the lifeblood of the world economy).
Market sentiment is negative
This is leaving broader risk appetite very cautious and is impacting markets:
- It is driving negative sentiment, with flow into safe haven assets such as the Japanese yen.
- The USD is also recovering some lost ground today.
- Higher-risk assets such as equities and oil are struggling.
JPY is strong, with USD also recovering
The USD is recovering against all major currencies this morning, with one exception, the JPY.
The JPY continues to be a clear outperformer over the past month.
In major forex, there is a clear divide, with currencies seen as higher risk (AUD especially) seen as underperforming.
AUD/JPY breaking down
So with JPY outperforming and AUD underperforming, it comes with little surprise that AUD/JPY is falling hard.
This morning, the pair has broken below the support of the December low at 87.01 and is now trading at a 12-month low.
- The market has been trending decisively lower for four weeks.
- Although the RSI is below 30, this reflects the bearish outlook.
There is a key band of overhead supply between 87.00/88.10 and we favour using rallies as a chance to sell.
The next support is at 84.60/86.25.
Support and resistance levels for Forex, Commodities, and Futures/Indices
|Brent Crude Oil
|S&P 500 futures
|FTSE 100 Index
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