Deutsche bank exasperates fear of a contagion, was Credit Suisse and SNB the beginning?

The SNB yesterday announced that it would raise interest rates by 50 basis points as was anticipated. The SNB claimed that the UBS takeover of Credit Suisse had averted a potential financial disaster with severe implications for the banking industry on a global level. Reuters quotes SNB’s Chairman Jordan as stating, “The multi-billion Swiss francs rescue package brokered by the SNB, government and regulator on Sunday prevent a systemic crisis.” Implying that the Credit Suisse scenario was also an outlier and that having taken swift and decisive action investors should not fear the risk of contagion spreading across other institutions as such, the 50-basis points hike was justified to combat inflation and as an attempt by the SNB to increase confidence in the Swiss Banking industry. In addition, the BoE also hiked interest rates by 25 basis points following suit with the decisions of the ECB and the FED considering the higher-than-expected CPI rates for February which as we mentioned yesterday unexpectedly accelerated and as such, it was anticipated that the BoE would raise interest rates. The forward guidance provided by the BoE could be perceived as dovish considering the following statement “CPI inflation increased unexpectedly in the latest release, but it remains likely to fall sharply over the rest of the year” which could be perceived as dovish as it could imply that later on in the year the BoE may decide to keep interest rates as they are or even potentially cut depending on the data that is available. However, we should note that the vote to raise interest rates was 7-2, with the two opting to vote for a hold thus indicating that the balance of power remains unchanged within the BoE as this was the case last meeting therefore, we do not see any immediate change in voting habits by BoE members. Furthermore, BoE’s Mann spoke yesterday stating that “We may well be entering a very different regime where we are going to have to work much harder as central banks” hinting that the BoE may not be done raising interest rates just yet. In the US we note the reduction in the Initial Jobless claims figure, slightly improving since last time however we should note that this did not result in any significant market reaction as the change in the figure was minimal. Furthermore, we note that Building permits in the US exceeded expectations coming in at 1.550M implying that the US economy is still growing despite high-interest rates as such this could provide some support for the USD despite New Home sales for February coming in lower than expected it appears that these two figures have countered each other out in the market allowing for the USD to remain relatively stable. However, we should that US Treasury Secretary Yellen yesterday according to Reuters, announced that the “US prepared to take more action to keep bank deposits safe”, thus calming down markets following the two different remarks made by Yellen in her testimony to US Congress and FED Chair Powell during the FOMC meeting.

USD/JPY is currently moving in a sideways channel after invalidating the downwards trendline. As such we hold a neutral outlook as the pair’s RSI indicator is at 50. For a Bearish outlook, we would require a clean break below the 130.10 (S1) support level and the possible testing of support at 128.90 (S2). For a Bullish outlook we would require seeing the break above the 132.75 (R1) level and the possible test of the 134.65 (R2) resistance base.

EUR/USD is currently in a sideways movement after failing to break below support at 1.0715 (S1). As such we hold a neutral outlook for the pair as it moves in sideways motion after invalidating the ascending trendline, in addition to the RSI indicator which currently stands near 50. Should the bulls dominate, we may see the pair make a clean break above the 1.0830 (R1) level allowing for a potential test of resistance at 1.0930 (R2). Should the bears take over, we may see a clean break below support at 1.0715 (S1) level and the move closer towards the 1.0650 (S2) support level.

Other highlights for the day:

During the European Session we being with Sweden’s Trade Balance for February followed by Germany’s Ifo Business Climate,Current Conditions and Expectations all for the month of March, followed by France’s Unemployment figure for February and UK’s CBI distributive trade indicator, for March.In the American session we note the People’s Bank of China Zhongxia’s speech following by ECB’s Schnabel and BoE’s Bailey’s speeches.

As for the rest of the week:

On Tuesday we note the release of Australia’s retail sales for February, France’s business climate for March and the US consumer confidence for the same month. On Wednesday, we note the release of Germany’s forward-looking GfK indicator for April. On Thursday we get Switzerland’s KOF indicator, Eurozone’s business climate and Germany’s preliminary HICP rate all being for March while from the US we note the final GDP rate for Q4 and the weekly initial jobless claims figure. On Friday, we note the release from Japan of Tokyo’s CPI rates for March, Japan’s preliminary industrial output growth rate for February, China’s NBS manufacturing PMI figure for March, France’s and Eurozone’s preliminary HICP rate for March, UK’s final GDP rate for Q4 and in the American session we note from the US the release of the consumption rate for February, the core PCE price index for February and the final university of Michigan consumer sentiment for March, while form Canada we note the release of the GDP rate for January.

USD/JPY H4 Chart

Support: 130.10 (S1), 128.90 (S2), 127.05 (S3)

Resistance: 132.75 (R1), 134.65 (R2), 137.75 (R3)

EUR/USD H4 Chart

Support: 1.0715 (S1), 1.0650 (S2), 1.0575 (S3)

Resistance: 1.0830 (R1),1.0930 (R2), 1.1050 (R3)

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