A crisis of confidence remains despite Credit Suisse bailout

Sentiment nervously recovers, but for how long?

• Swiss National Bank bails out Credit Suisse: A 50bn CHF funding facility has been granted 
• A crisis of confidence has taken hold: Can the bailout of one bank be enough to settle the nerves?
• USD is lower: The USD is underperforming on major forex pairs today
• Equities rebound: European indices are c. 1.5% higher in early moves. US futures are slightly more tentative c. +0.4%.
• Precious metals are mixed, oil finds support: In commodities, we see gold flat, with silver and oil slightly higher.

A crisis of confidence hits European markets

The banking crisis that has taken hold in the US in the past week has reached European shores. However, this is more of a crisis of confidence.

Credit Suisse, a Swiss banking giant (also seen as one of the 30 most systemically important banks in the world) has been forced to beg the Swiss National Bank for funding.

The bank is already being restructured but its largest shareholder has refused to increase its support. Just a week ago Silicon Valley Bank failed to secure a capital raising which resulted in it going bankrupt.

With echoes of 2008, traders chose the option to sell now and ask questions later.

Yesterday we saw any market seen as remotely higher risk being slammed. The bearish focus was squarely on equities and oil

The Swiss National Bank rides to the rescue

However, with Credit Suisse going cap in hand to the Swiss National Bank, a funding line of 50bn CHF (c. $54bn) was secured overnight.

Market sentiment is staggering around, attempting to recover this morning after being hauled off the canvass.

However, the big question is for how long? 

If this is a crisis of confidence, there is very little to suggest putting a sticking plaster on a gaping wound will do the trick.

Confidence will be extremely fragile, especially if further cracks appear in the European banks.

Watch out for the ECB later

Furthermore, we do not need to wait long for the next big risk event. The European Central Bank announces its monetary policy update today.

A week ago a 50 basis points hike was nailed on. Not now.

Given the issues surrounding Credit Suisse and the crisis of confidence, a 50bps hike is unlikely. It could be 25bps or perhaps even no change at all.

Whatever the decision, there will be further significant volatility today, especially with the decision at 13:15 GMT. 

Sentiment is rebounding, for now

For now, there are some key retracement moves this morning:

• USD is selling off – However, the safe havens of JPY and CHF are outperforming. The AUD is also positive.
• Oil has found support – having sold off sharply in recent days, oil is trying to build some sort of support
• Equities are rebounding – After downside of over -3% on FTSE and DAX yesterday, both indices are trading over +1% higher today.

However, moves still look very tentative and could easily fall over.

EUR/USD rebounds and a breakdown on Brent Crude oil

EUR/USD

The price fell sharply yesterday. However, strap yourselves in because there will likely be more volatility around today’s ECB meeting.

A huge bearish reversal on the daily candlesticks has left important resistance now at 1.0760. 

During moments of high volatility is where technical analysis becomes slightly less effective. With moving averages broadly flat and the RSI oscillating around 50, this leaves a very mixed picture.

However, support at 1.0515 from yesterday’s low will now be watched. This now defends the key support of the 1.0480 January low.

Brent Crude Oil (UKOUSD)

A key move lower has been building in recent days and has now broken key support. 

The market has been trading in a range since early December. The range low at $75.50 has been solid for several weeks but has been broken with a decisive bearish candle.

The market is trading at its lowest since December 2021. The market is also struggling to form any sort of recovery today.

There is now a big band of overhead supply from all the old lows between $75.50/$79.00 which is now key resistance.

Yesterday’s low at $71.70 is initial support before $69.50 and $66.35 (Dec 2021 low). 

Support and resistance levels for Forex, Commodities, and Futures/Indices

Data: MT5/IXOne

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