To The Moon

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.