Information about the collapse of one of the largest banks in the U.S., Silicon Valley Bank (SVB), shocked the participants of the global financial market. As early as Friday, the markets experienced a resounding "pop" after reports that the 16th largest U.S. bank, the main bank of Silicon Valley tech startups Silicon Valley Bank, has collapsed. Silicon Valley Bank was declared bankrupt on March 11, the biggest collapse in the U.S. banking system since the last financial crisis in 2008. And on Sunday, amid the collapse of Silicon Valley Bank due to systemic risks, the New York Fed decided to close Signature Bank.
As can be seen from the charts of trading dynamics on world stock markets, futures and other risky financial instruments collapsed last week and continued to decline today, opening the trading day with a gap down.
The dollar followed. Thus, as of writing, futures for the dollar index (DXY) were trading near 103.79, 76 points below the closing price last Friday, and during the Asian trading session the price fell to 103.35.
The decline in the dollar and the DXY began last Thursday and continued into Friday. The U.S. Department of Labor report, published last Friday, could not support the dollar. Although the number of new jobs in February increased by 311,000 (after +504,000 growth in January), which was much higher than the +205,000 forecast, market participants pointed to the growth of unemployment from 3.4% to 3.6% and a slowdown in the average hourly wage from 0.3% (January) to 0.2% (from 4.4% to 4.6% year-on-year with the forecast of 4.7%).
The market seems to have already forgotten Fed Chairman Jerome Powell's statements early last week about the need to continue the policy of tightening monetary conditions. Fed policymakers are expected to raise the interest rate again by 0.25% at the March 21 and 22 meetings, although after Powell's speech in Congress, a 0.50% rate hike is now not ruled out.
However, deteriorating U.S. labor market indicators and sad news from the U.S. stock market may now hamper the Fed's fight against high inflation, economists say. In other words, the spring of intrigue around this month's upcoming Fed meeting is getting tighter. According to the CME Group, markets now estimate a 96% chance of a 25 basis point rate hike at the Fed meeting because of the "recent stress in the banking system." However, some economists believe that the Fed will not raise interest rates at the March 21 and 22 meetings and may announce a pause, despite the fact that "there is considerable uncertainty about further actions."
In the current situation, the demand for traditional defensive assets such as government bonds, the franc, the yen, and gold rose sharply. Gold soared to 1893.00 today, corresponding to the highs of February 6. Last week, XAU/USD fell towards the key support levels 1814.00 and 1807.00, separating the medium-term bull market from the bear market. Last month, XAU/USD and gold prices lost more than 7%, dropping from an intra-month and 10-month high of 1959.00 and testing 1805.00. With the stronger dollar, everything looked set for a breakout of the key support levels 1807.00 and 1800.00.
However, we can never be completely immune to surprises, including in the financial market. The nearest significant resistances are at 1896.00 and 1900.00. Whether the price will break through them and go higher, we will see in the coming days.
In general, the global bullish trend persists, and recall that last month, the price was at 1959.00.
There are no releases of important economic indicators on the calendar for today. They are scheduled tomorrow: at 07:00 (GMT), the Office for National Statistics labor market report, and at 12:30 (GMT), the latest U.S. consumer inflation data, which will become key for Fed officials after Friday's report of the U.S. Department of Labor when they make a decision on the interest rate next week.
