US Stock Market Falls Amid Concerns of Banking Sector Turmoil

March 20, 2023

The US stock market suffered a setback on Friday as investors grew increasingly concerned about the impact of the banking sector’s turmoil on the global economy. However, amidst this tumultuous week for global markets, technology stocks emerged as the beneficiaries of the situation. The Nasdaq 100 rallied by 5.8%, posting its best performance since November, despite a slump on Friday. Investors flocked to old standby favorites in the tech sector, including Microsoft Corp. and Alphabet Inc., as they bet that the Federal Reserve would take a more moderate approach to its tightening path.

Unfortunately, Credit Suisse Group AG further exacerbated the financial sector’s troubles when Reuters reported that at least four central banks, including Deutsche Bank AG, had curtailed trading with the struggling Swiss lender. As a result, the regional bank gauge fell by 15% over the past five days. First, Republic Bank became the latest US lender to signal stress, plummeting by over 70% during the week, despite larger banks providing a lifeline to the regional lender on Thursday.

While the banking sector dragged the S&P 500 index to a 1.1% drop on Friday, the benchmark still managed to carve out a 1.4% weekly gain. Unfortunately, all eleven sectors of the S&P 500 remained in negative territory, with the financial sector posting a 3.37% daily loss and emerging as the worst-performing sector. The Dow Jones Industrial Average fell by 1.2%, and the MSCI world index slid by 0.6% for the day.

As investors reassessed rate-hike wagers, the policy-sensitive two-year experienced more than a 20 basis point swing for the seventh straight session. Yields fell across the curve on Friday following a softer-than-expected reading on inflation expectations.

Main Pairs Movement

On Friday, the US Dollar experienced a deeper decline of 0.68%, failing to benefit from the weak market sentiment. The DXY index ended the week with its lowest close in five weeks, with the American trading session witnessing intense selling pressures, causing it to close below the critical level of 103.9.

The EURUSD showed an upward momentum, rallying with a daily gain of 0.57% due to the persistent effects of the ECB’s rate hike policy. The pair drew in fresh transactions at the beginning of the US trading hour, peaking at a daily high of 1.0685 level. Similarly, the GBPUSD also experienced some buying activity during the first half of the NY session, despite the broad weakness of the US Dollar. It concluded the day with a daily gain of 0.53% on Friday.

In contrast, the Gold market saw a substantial increase of 3.63% daily. This was fueled by concerns regarding widespread contagion, leading to a surge in haven flows and consequently benefiting the price of Gold. The XAUUSD continued to show a strong bullish momentum throughout Friday, eventually closing at a daily high of $1988 marks.

Technical Analysis

EURUSD (4-Hour Chart)

On Friday, the EUR/USD pair rose due to an increase in buying activity and recovered from the low of 1.0615, which it had reached during the European session. The pair is now trading at 1.0647, with a 0.36% daily gain. The US dollar weakened against other currencies, as the expected rate hike of only 25 basis points (bps) in the upcoming FOMC meeting reduced bets on the greenback and dragged US bond yields lower. Positive news regarding the US and European banking sectors helped to reduce concerns over a potential banking crisis, which supported the EUR/USD pair and improved market sentiment. The European Central Bank increased its key rates by 50 bps on Thursday, and a board member suggested that the terminal rate has not been reached yet and there may be more rate hikes in the future.

Regarding technical analysis, the RSI indicator was at 54, suggesting that the pair is gaining upside momentum as it rises above 50. The Bollinger Bands also indicate some upside movement as the price climbed above the moving average, indicating a potential bullish trend. Overall, the market is expected to be bullish, and the pair may test the resistance level of 1.0685. Technical indicators also suggest a bullish trend.

Resistance: 1.0685, 1.0745, 1.0790

Support: 1.0542, 1.0467

XAUUSD (4-Hour Chart)

On Friday, the XAU/USD pair surged to its highest level since April, rising above the $1,960 mark as renewed selling around equity markets and global risk-aversion boosted demand for safe-haven assets. At present, the Gold price is trading at $1,961, representing a 2.22% gain daily. The decreasing likelihood of more aggressive policy tightening by the US central bank and falling US bond yields both contributed to bearish pressure on the US Dollar, driving investors towards the precious metal. Investors remain concerned about the global banking crisis and its potential for widespread contagion, which could continue to benefit Gold prices.

From a technical standpoint, the RSI indicator currently stands at 74, indicating heavy bullish momentum as the RSI remains above the overbought zone. The price has moved out of the upper band of the Bollinger Bands, indicating a strong continuation of the upside trend. Overall, the market is expected to remain bullish as the pair tests the resistance level of $1,956. A sustained strength above this resistance could potentially lead to further gains.

Resistance: 1956, 1995

Support: 1914, 1887, 1808

Economic Data

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