Market Drivers – US Session 16/03/2023

Mohamed Abdelhamid 18 March, 2023 2:02 am Forex Market, Market Update

The USD/CAD pair finished the week lower around 1.3700 but far from the bottom. Next week, the key report from the Canadian economy will be February’s Consumer Price Index (CPI) on Tuesday. The kiwi was among the biggest gainers despite weak New Zealand Q4 GDP data. The

AUD/USD had the best week in months, helped by a weaker US Dollar and also by upbeat Australian employment data.

What started a week ago with the Silicon Valley Bank (SVB), continued with Signature Bank, Credit Suisse (that stays on the lookout) and the First Republic Bank. Financial market turbulences will remain centre-stage over the next days.

US Treasuries had the biggest weekly gains in years. Yields across the globe collapse as investors fly to quality amid rising odds of interest rate cuts before year-end. The Japanese Yen was the main winner among currencies of this context. USD/JPY lost almost 300 pips.

Key Developments

The banking crisis, which also involved Credit Suisse, had an impact on the Swiss franc. The Swiss National Bank (SNB) was obligated to act as a result of the circumstance. On Thursday, the SNB will reveal its choice about monetary policy. Although Switzerland’s inflation for February came as a pleasant surprise, the present unrest may prevent the SNB from implementing another increase. Returning to the 20-week Simple Moving Average, USD/CHF recovered quickly from near 0.9000. EUR/CHF increased beyond 0.9900 after hitting a four-week low.

Wall Street indexes closed lower on Friday, but managed to end higher a significantly volatile week as traders sail in rough waters. The Nasdaq gained more than 4%, on a bumpy trip. Banking concerns again dominated price action across financial markets. European and Asian indices closed with weekly losses.

Gold is another major winner rising more than a hundred dollar during the week, approaching $2,000. The precious metal is also benefiting from risk aversion and the reversal in bond yields. Bitcoin keeps moving north and is back above $26,500 after rising more than 20% during the week.

It was a wild week for emerging market currencies. USD/MXN jumped for the second week in a row. The pair erased a 10% YTD loss but failed to hold above 19.00.

The European Central Bank (ECB) raised interest rates by 50 basis points as expected and dropped forward guidance. Economic data is being overshadowed by current developments; however, next week’s PMIs will gather attention. French President Emmanuel Macron will face a non-confidence vote next week. The banking crisis weighed on the Euro. EUR/GBP posted the lowest close since mid-January. EUR/USD ended the week flat looking at the 1.0700 area, after holding above critical 1.0500.

Economic Data

The Fear Index, VIX, moderated, rising around 2% over the week, but is up 25% from the level it had a months ago.

The US Dollar Index (DXY) posted the lowest weekly close in five weeks. The deterioration in market sentiment did not boost the dollar enough. If systemic risk fears start to dominate price action the DXY could make a strong comeback. Consumer sentiment in the US weakened in early March with the University of Michigan’s (UoM) Consumer Confidence Index declining to 63.4 from 67 in February. This reading came in worse than the market expectation of 67.

Better-than-expected economic data from the UK offered support to the Pound. GBP/USD had the best weekly performance since mid-January, rising toward 1.2200. Next week, Bank of England’s Monetary Policy Committee will met. Market participants expect a final 25 basis points rate hike.

Next Week’s Sessions

Next Wednesday, the FOMC meeting will likely raise interest rates by 25 bps, despite market tensions. If the US central bank stays on hold afraid of the current context, it could trigger a shock in markets that could offset the positive news of a pause of the tightening cycle. The clues about the future will be watched closely. China on Monday is seen leaving rates unchanged.

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