Investors
seem to not believe central bankers, as stock markets are sliding down. The
S&P 500 broad market index is losing 0.8% and heading towards 3893 points,
Brent crude prices are hovering around 18-month lows at $70.20 per barrel,
while gold and Bitcoin are gaining around 1%.
Central
bankers have tried to do everything to calm down markets and eliminate all
possibilities of a banking crisis. UBS was led to buy toxic Credit Suisse and
promised to extend a $100 billion credit line to save the second largest Swiss
bank. The Federal Reserve (Fed), the European Central Bank (ECB), the Bank of
England, the Bank of Japan, the National Bank of Switzerland, and the Bank of
Canada agreed to bolster cash flows by offering daily swaps with other major
banks, at least by the end of April.
The Fed has
also introduced other measures, including the new Bank Term Funding Program (BTFP),
to stabilise the financial situation and to allow investors to resume risky
asset buying. However, investors do not want to dip into risky assets. Elevated
volatility in the markets is revealing to central bankers that investors could no
longer take any further rise of interest rates. Additional liquidity will
hardly solve this problem, and it may even lead to rising volumes of
ineffective financial operations. Markets need a structured solution that is only
possible with the lowering of interest rates.
The hawkish
decision of the ECB, that raised interest rates by 50 basis points last week, has
already been priced in and has not lead to extra volatility. The Fed interest
rate decision this week may be viewed differently amid flaring troubles surrounding
the banking sector. If the Fed raises interest rates by 25 basis points, and
continues to assure markets of stability in the banking sector, investors may
have no choice but to initiate a major sell-off to force the Fed to change its
hawkish course. Perhaps, that is what the Fed wants to bring down inflation. If
so, sell-offs may turn into a major market meltdown.
Technically,
the S&P 500 index continues to move within a downside formation with
targets at 3650-3750 points. The index returned to the support level of
3890-3910 points. The nearest resistance is 4000-4020 points. If the support fails,
the index may fall towards the primary target at 3650-3750 points, even before
the Fed meeting on March 22.
Oil prices
confirmed a downside breakthrough of the wide trading range of $79-89 per
barrel of the Brent crude benchmark, and quickly dropped to $72 per barrel.
Recession logic suggests that prices may decline towards $40-60 per barrel. The
Organisation of Petroleum Exporting Countries and its allies (OPEC+) will only meet
at the beginning of April. So, there seems to be nothing to support prices, as
the Fed could hardly be expected to make a U-turn in its hawkish monetary
policy.
Gold prices
are moving inside the mid-term, upside formation with targets at $2000-2100 per
troy ounce by the middle of 2023. Prices broke through the resistance level of
$1890-1900 per ounce amid a shocking quake in the U.S. banking system and the
widening fears of a possible banking crisis. Prices have already reached the
target and are likely to tumble before they can resume climbing towards extreme
targets at $2400-2500 per ounce. It is better to wait and see how the situation
evolves.
The U.S.
Dollar may continue strengthening, but it will largely depend on the Fed’s
decision. Considering high volatility in the market, it is better to place
orders attached to longer perspectives. Short trades for EURUSD opened at
1.06700-1.07200 with a downside target at 5000 points below the opening level
and the same 5000 points for a stop-loss order should be considered attractive.
The decline of the EURUSD to 1.05000-1.05500 could be used to close half of the
trade, and the other half should be continued until the targets of
1.03000-1.03500 are met. It is likely the Fed will help to move towards these
targets this week.