The US stock market experienced fluctuations on Monday, marked by oscillations between gains and losses. A sudden drop in the yield on the two-year Treasury note was one of the reasons for this. The drop was significant, its largest in decades. On the other hand, tech stocks rebounded from a previous week’s dip after Silicon Valley Bank’s collapse. The fallout from the SVB’s collapse led President Joe Biden to promise stronger regulation of US banks and assure depositors of their safety. However, the sudden decline in banks’ stability led to a swift reassessment of the Federal Reserve’s policy direction, causing swaps traders to price less than a 60% chance that the Fed will hike by another quarter percentage point later this month. The US regional banks’ situation caused trading halts across the sector, with First Republic Bank plunging 62%.
The Nasdaq100 in the benchmark edged up by 0.8%, while the S&P500 closed with a 0.2% loss, leaving only four out of eleven sectors in the negative territory. The day’s financial sector fell sharply, dropping 3.85% amid fears of a bank failure. Furthermore, the Dow Jones Industrial Average fell 0.3%, while the MSCI world index dropped 0.4%.
Main Pairs Movement
On Monday, the value of the dollar decreased as investors speculated that the Federal Reserve may slow down or even pause its interest rate hikes to combat inflation. This speculation arose after U.S. authorities took measures to limit the negative impact of Silicon Valley Bank’s sudden collapse. The DXY index, which measures the dollar’s strength against a basket of other currencies, dropped by nearly 0.4% at the start of the week before entering a consolidation phase and closing at around the 103.7 level.
In contrast, the GBPUSD pair experienced a 1.27% daily gain due to the overall weakness of the dollar. During the American trading hours, the pair attempted to surpass the resistance level of 1.2200, but eventually lost momentum and retreated to the 1.2185 level by the end of the day. Similarly, the EURUSD pair gained 0.83% for the day and closed at the 1.073 level. Currently, investors are closely monitoring the CPI report scheduled for release on Tuesday.
Meanwhile, gold continued its bullish momentum and surged by 2.43% on Monday, benefitting from renewed risk aversion among investors. The banking crisis originating in the United States and spreading across the Atlantic has been a key focus of concern. The XAUUSD continued to trend upwards, breaking through the psychological level of $1900 and closing at $1914 by the end of the day.
Technical Analysis
EURUSD (4-Hour Chart)
On Monday, the EUR/USD pair made a significant upward move, rebounding and surpassing the 1.0730 level after dropping earlier in the day to the 1.0650 region due to concerns in the banking industry. Currently, the pair is trading at 1.0723, marking a daily gain of 0.80%. The EUR/USD continues to perform positively, benefiting from a weakened US dollar, which has been experiencing a recent decrease in US yields not seen in years, leading to the currency’s decline against its main European competitors. The collapse of Silicon Valley Bank has played a significant role in driving the markets, thereby reducing the likelihood of a 50 basis points rate hike from the Federal Reserve next week and causing US yields to decline sharply. Additionally, mixed results from the February Payrolls, released last Friday, have contributed to bearish pressure on the greenback, providing support to the European currency. This week, the Eurozone will be quite active, with a monetary policy meeting scheduled for Thursday by the European Central Bank (ECB).
Regarding technical aspects, as of writing, the RSI indicator shows figures of 70, indicating that the bull is in control as the RSI approaches the overbought zone. Furthermore, regarding the Bollinger Bands, the price has recovered and rebounded to the upper band, demonstrating renewed upside momentum, which could signal a continuation of the upward trend. Overall, we predict a bullish market as long as the 1.0685 support line remains intact.
Resistance levels: 1.0790, 1.0918, 1.1020
Support levels: 1.0685, 1.0576, 1.0531
XAUUSD (4-Hour Chart)
Due to increased market volatility and rising risks, there has been a surge in demand for safe-haven assets, causing the XAU/USD pair to advance sharply and reach the $1,910 area on Monday, following the collapse of Silicon Valley Bank (SVB). As of the time of writing, the price of gold is trading at $1,911, having risen 2.4% on a daily basis. The decrease in expectations for a rate hike by the Federal Reserve (Fed) has led to a sharp drop in US yields, which is considered the primary catalyst for the rise in the price of gold. The collapse of the Silicon Valley Bank has triggered concerns about the banking sector, and the odds of a 50 basis point rate hike from the Federal Reserve next week have diminished. As for now, the upcoming US February Consumer Price Index (CPI) on Tuesday is expected to be critical for monetary expectations. After the SVB collapse, markets are pricing in a softer Fed.
From a technical perspective, the RSI indicator currently sits at 89, suggesting that the XAU/USD pair is experiencing heavy bullish momentum as the RSI stays well above the overbought zone. As for the Bollinger Bands, the price is moving alongside the upper band, indicating that the upward trend should persist. Therefore, we believe that the market will remain bullish as the pair is heading to test the 1,924 resistance level. A convincing break above that resistance level will lead the price toward the $1,947 mark.
