Credit Suisse and UBS, a merger of two Goliaths.

Over the weekend the Swiss authorities persuaded UBS to pay $3.23 billion for the acquisition of Credit Suisse following it’s spectacular drop of 26% within 5 days. After the SNB failed to calm the markets with the assistance it provided to Credit Suisse, regulators forced through a historic deal in order to prevent further contagion in the Banking Industry. In order for this to be achieved regulators will have to amend Swiss banking regulations in addition to bypassing shareholder votes for both UBS and Credit Suisse effectively silencing the stakeholders who were forced to stand on the sideline and watch. The SNB according to Bloomberg offered $100 billion in liquidity to UBS in order to sweeten the deal. Furthermore, following the announcement of the deal President of the ECB Christine Lagarde said “I welcome the swift action and the decisions taken by the Swiss authorities. They are instrumental for restoring orderly market conditions and ensuring financial stability”. Following the historic merger, a shocking joint statement was made by the FED, BoC, BoE, BoJ, SNB and the ECB where it was announced that the swap lines between the Central banks “will allow the central banks of the eurozone, Britain, Japan and Canada to each day offer seven-day dollar loans to their banks.”

Further reiterating our comments made last week that in the ECB’s report there was a great concern in regards to the Banking industry as the ECB tried to re-assure the markets further reiterating the comments made previously that the “ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed”. In addition, academics released a paper on the 13^th of March that claim that according to their calculations “Out of the 10 largest insolvent banks, 1 has assets above $1 Trillion, 3 have assets above $200 Billion (but less than $1 Trillion), 3 have assets above $100 Billion (but less than $200 Billion) and the remaining 3 have assets greater than $50 Billion (but less than $100 Billion)”. We expect that should the central banks be able to calm the markets with their decisiveness, operations may resume smoothly, yet on the other hand, given that the stakes are high, we may see uncertainty being maintained.

USD/JPY has been on a downward trajectory since the 10^th of March. As a result of the current market conditions, we maintain a bearish outlook for the pair as it continues to validate the downwards moving trendline, in addition to the RSI figure remaining close to 30. For our Bearish outlook to continue we expect 131.40 (S1) level to break paving the way for the 128.90(S2) level. If the Bulls take control of the pair breaking the downward trendline then the pair may test the 134.65(R1) resistance line and if broken may allow a testing of the  137.55(R2) level.

USD/CHF failed to break through support at 0.9250(S1). We hold a neutral outlook as the pair is moving in a sideways channel. Also, note that the RSI indicator is running along the reading of 50 implying a rather indecisive market. In the event of a Bullish outlook, we could see a test of resistance at 0.9325 (R1) with the next possible target for the bulls being the 0.9435 (R2) resistance line. For a Bearish outlook, we could see a test of support at 0.9250 (S1) level with the next possible target for the bears being the 0.9165 (S2) level.

Other highlights for the day:

Today we note Germany’s Producer prices for February, Eurozone’s trade balance for January and later on New Zealand’s February trade data and we also note the visiting of President Xi to Russia.

As for the rest of the week

In Tuesday’s European session we begin with Germany’s ZEW indicators for March, while later on, we get Canada’s retail sales for January and CPI rates for February. On Wednesday we get from the UK the CPI rates for February and the CBI indicators for trends in industrial orders for March. The star of the day though is expected to be the Fed’s interest rate decision. On Thursday we note the release of the weekly US initial jobless claims figure and Eurozone’s preliminary consumer confidence for March. On the monetary front, please note the interest rate decisions of SNB, CBT, Norgesbank and BoE. On Friday we note March’s preliminary PMI figures for Australia, Japan, Germany, France, the Eurozone as a whole, the UK and the US while we also note the release of Japan’s CPI rates for February, UK’s retail sales for February.

USD/JPY H4 Chart

Support: 130.40 (S1), 128.90 (S2), 127.05 (S3)

Resistance: 134.65 (R1), 137.55 (R2), 139.45 (R3)

USD/CHF H4 Chart

Support: 0.9250 (S1), 0.9165 (S2), 0.9070 (S3)

Resistance: 0.9325 (R1),0.9435 (R2), 0.9525 (R3)

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