The risks to banks remain but markets are starting to settle

Volatile trading conditions are beginning to ease

• The sale of SVB assets has helped: No new bad news on banks is also a positive. 
• Volatility in forex is settling down: Average True Ranges of major pairs are falling
• USD is easing lower: The USD is underperforming major forex 
• Equities are gradually recovering: European indices are ticking higher again, US futures are moving positively too.
• A rebound in oil: In commodities, we see oil at an eight-day high.

With no new bad news on US banks, confidence is tentatively returning 

With a panic to sell, the sell-offs are always more aggressive than the recoveries.

Volatility has spiked higher over recent weeks, but it is starting to reduce.

This comes amid two more positive developments in the US banking crisis.

1. First Citizens Bank (a bank from North Carolina, US) has agreed to buy the assets of the stricken Silicon Valley Bank.

2. There were no new banking blow-ups over the weekend. No news is good news.

Lower volatility is a sign of recovery

Lower volatility is a sign of more positive sentiment starting to return to major markets. 

First of all, it is important to say that volatility is still elevated. The US banking crisis caused volatility to spike to record levels on US Treasuries.

The volatility on US Treasury bonds remains extremely high. However, it is lower than it was at its peak a couple of weeks ago.

Furthermore, volatility in forex markets has also eased back slightly. 

As can be seen in the chart below, this is starting to be reflected in the Average True Range (ATR) of EUR/USD dropping back. The ATR is an indicator of how wide an instrument moves between its traded highs and lows throughout a session.

We can see that the falling ATR is being seen on other major pairs such as GBP/USD and AUD/USD.

However, reducing volatility is not just being seen in forex markets. It is also coming in equity markets too.

The VIX Index of volatility in S&P 500 options remains elevated but is at its lowest in almost three weeks.

Lower volatility in equities suggests a calming of the panic and a return to a more settled trading environment. 

It is still early days though

Although volatility is starting to reduce, it is clear from these charts that it is still elevated. There is a tentative improvement with a lack of bad news.

However, the reaction to any resurgence in the banking crisis will be an important gauge of how solid this nascent improvement in confidence is.

USD is weaker, oil is at a key crossroads

A more confident outlook in forex markets is weighing on the USD today. 

Equity markets are edging positively higher too, helped by a higher oil price.

GBP/USD

Cable is strengthening this morning.

Once more the pair is pushing higher within a four-month trading range between 1.1780/1.2445.

The bulls will be eyeing a move back towards a test of the key December/January highs around 1.2445.

• Momentum is positively configured with the RSI consistently above 50 and pushing towards 60.
• There is good initial support at 1.2190/1.2200, with near-term weakness supported at higher levels.

It would need a move below 1.2010 to change the encouraging outlook within the range now.

Brent Crude oil (UKOUSD)

There was a key pull higher on Brent Crude oil yesterday, which is holding ground today.

This move now brings the price back to a key near to medium-term crossroads again.

• The overhead supply resistance of the old key lows between $75.55/$80.50.
• The daily RSI has unwound back to 50 again.

The reaction to this crossroads could be an important gauge for the outlook in the weeks to come. Initial support is between $76.00/$77.40.

There has consistently been a run of bull failures over recent months. That would suggest that this resistance is likely to cap the recovery.

However, if risk appetite continues to improve, there is room for a continued technical rally.

This is a key crossroads.

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

Data: MT5/IXOne

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