Neither SVB nor Credit Suisse are eurozone banks, but the ECB has to raise the alarm because of the problems that have arisen. How soon will they be resolved? Should EURUSD bulls be afraid? Let’s discuss this topic and make up a trading plan.
Weekly Euro fundamental forecast
The past is returning. There was a saying in the market that one sneeze of the prince of Saudi Arabia could crash oil prices. In mid-March, the statement by the head of the Saudi Central Bank that he did not care about Credit Suisse’s requests for additional investment caused EURUSD to collapse. Neither the Fed nor the ECB were able to lower the euro so much. Should euro buyers panic?
Now the US banking system is unstable, and investors are nervous and looking for the slightest signs of this trend spreading around the world. Thus, even minor announcements can cause major market movements. Stocks of Credit Suisse lost a quarter of their value and once even sank by 31%. Stocks of other European banks also fell: Societe Generale’s by 12%, BNP Paribas’ by 10%, and Commerzbank’s by 9%.
The outflow of deposits from Credit Suisse has been going on for a long time against the backdrop of scandals about money laundering by drug traffickers in Bulgaria, corruption in Mozambique, and massive leaks of information about clients in the media. The decision of the largest shareholder of the Saudi Central Bank not to give more money was the last straw.
Dynamics of the money outflow from Credit Suisse
Source: Bloomberg.
However, aren’t investors exaggerating the situation? Unlike SVB, Credit Suisse has very good levels of liquid assets. It also has access to several central bank instruments in various countries and is less sensitive to sharp rate changes. The Swiss National Bank notes that the credit institution meets the requirements for liquidity and capital, and a series of bankruptcies in the US will not spread to the Swiss banking system. SNB is ready to provide a loan of 50 billion francs to Credit Suisse. I believe that the situation will stabilize shortly.
The panic forced the futures market to reduce the possibility of a 50 bps ECB deposit rate hike in March from 90% to 20%. This was the main catalyst for EURUSD sell-offs. But neither SVB nor Credit Suisse are eurozone banks! However, it is the ECB, and not the Fed, who is forced to be the first to raise the alert about the dangers that have arisen.
The reaction of the markets looks overly exaggerated. Regulators will be able to stabilize the situation, and investors will again focus on macroeconomics. Namely, a slowdown in US retail sales and producer price growth. Not surprisingly, derivatives forecast the Fed funds rate to fall below 4% by the end of 2023, which is bad news for the dollar.
Dynamics of US producer prices
Source: Bloomberg.
Weekly EURUSD trading plan
Whatever happens in the market, always remain calm. Mass sales is a perfect opportunity to enter purchases. Use a great strategy to enter EURUSD long trades if the pair returns to the range of 1.0575-1.0725. It made it possible to purchase euro at an attractive price. I recommend holding the asset.
Price chart of EURUSD in real time mode
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