Market Edge #57
Originally posted on thepensivenugget.com
Trouble in the banking system has very quickly metastasized from the failures of regional banks, Silicon Valley Bank and Signature Bank, to hit a globally systemic important one, Credit Suisse.
Systemic risk is obviously a major concern now, which is best observed and indicated in two macro markets, the USD and US rates.
Pay very close attention to what they are doing!
- While each bank has its own individual issues that contributed to their problems, the common underlying factor determining their fate is the same — the global repo market (as explained in our article on SVB)
- Systemic risk is obviously a major concern now, which is best observed and indicated in two macro markets, the USD and US rates
- The main indicator to watch for is an alignment in these two markets, where both move together in a direction which signals deteriorating conditions in the global financial markets. This specifically means a stronger USD, and lower US rates
- The more important macro markets, like oil and base metals, that line up in the same direction, the more danger of a global crisis and selloff
- Currently, US rates have begun to move sharply lower, but the USD has yet to breakout of key levels
USD Has Yet To Breakout Of Key Levels…EUR
- EUR is still hovering above key support at ~1.049
- A break below this level would open up a move down to retest parity
USD Has Yet To Breakout Of Key Levels… GBP
- GBP has also yet to break below key support at 1.175, and continues to hover in the 1.20–1.21 region
- A decisive move below 1.175 will open up the possibility of a test of 1.113 to the downside
USD Has Yet To Breakout Of Key Levels… AUD
- AUD is currently testing key support at 0.658, but has also yet to break below
- A breakout here could lead to a retest of its October ’22 lows at ~0.62
USD Has Yet To Breakout Of Key Levels… CAD
- The USD has managed to break above 1.37 against CAD over the last few days, but needs to break above key resistance at its October high ~1.3975
USD Has Yet To Breakout Of Key Levels… JPY
- USDJPY needs to move above 137.9 in order to resume last year’s surge up to 151.9
USD Has Yet To Breakout Of Key Levels… CNY
- CNY has yet to weaken past 7 versus the Dollar, even as volatility has picked up strongly in the past two weeks
- A break above 7 will signal sharply tightening global USD liquidity, and indicate a possible move back up to retest 7.3
The US Yield Curve Is Steepening, But In A Bad Way…
- US 2s10s have spiked higher this week, moving 60 bps in a matter of days, which is an extremely large move
The US Yield Curve Is Steepening, But In A Bad Way…
- However, the sharp steepening in the 2s10s spread has been due to a much larger drop in 2y yields relative to 10y yields
- The market pricing lower yields in the middle of a Fed hiking cycle is bearish for risk assets in general
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Watch The Dollar & US Rates As Credit Suisse May Fail was originally published in InsiderFinance Wire on Medium, where people are continuing the conversation by highlighting and responding to this story.
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