As economists expected, First Republic Bank collapsed, and larger banks such as JP Morgan and Goldman Sachs started picking up the pieces. However, many economists continue to advise the US is not heading towards a credit crunch. According to most economists, the collapse of 3 US banks is purely due to poor management and the bank's inability to cope with the changing monetary policy.
The global stock market has not taken a sharp downturn in response to the latest developments. This is also partially due to the collapse being expected by market participants for over 1-week. Nonetheless, the stock market growth has lost momentum. The US Stock market will also continue to be influenced by earnings reports. The SNP500 has been the best-performing index so far this week. Unlike the NASDAQ and Dow Jones, the index price remained unchanged but avoided a loss. The SNP500 today will be partially affected by the release of Starbucks’ quarterly earnings reports and Pfizer's.
Another issue for the stock market is the US government's debt level. The US government must raise its depth and agree over the next few weeks. According to Treasury Secretary Janet Yellen, the US Government could default by the first week of June 2023. This is not necessarily a big issue as long as Congress reaches an agreement quickly. If the US Congress does not agree to increase the debt limit, investor confidence may decline and push US stocks lower. This is also something that the Treasury Secretary has said, advising, “Waiting until the last minute can cause serious harm to business and consumer confidence”.
The US Dollar slightly rose in response to the First Republic Bank collapse but has slightly declined this morning. The US Dollar Index this morning is down 0.15%, though participants will be monitoring the price movement as the US trading session approaches. The Euro is increasing in value this morning against most currencies, but the price movement will largely depend on this afternoon’s Eurozone Inflation Data. This morning's best-performing currency is the Australian Dollar after the RBA unexpectedly raised interest rates to 3.85%. This morning's worst-performing currency is the Japanese Yen, which continues to come under strain from the Bank of Japan’s comments last Friday.
USD/JPY
The USD against the Japanese Yen increased in value on Friday by 1.88%, 0.85% yesterday and 0.18% this morning. The exchange rate has now increased to the previous resistance level seen at 137.900, which caused a collapse in early March. However, exchange rate over the past six months has previously increased more than 10% higher than the current rate. Therefore, traders are aware a breakthrough is possible. However, let's dive deeper into understanding what influences price movement and technical analysis.
The Japanese economic data has not necessarily changed over the past months to trigger a Yen selloff. However, the press conference by the new Bank of Japan Governor advised he is willing to maintain a dovish policy and is even ready to loosen the policy if required. The dovish statement worries investors that interest rates may remain low for a longer period with Yield Curve Control. Over the past three weeks, the Yen has lost over 4.30% of its value.
The data from the US is not necessarily positive. However, a dovish monetary policy is out of the question, hence why investors exchange from Yen to Dollars. The JOLTS Job Openings data will influence the US Dollar over the following 2 days, ISM Services PMI and mainly by the Fed’s interest rate decision. Economists expect the Federal Reserve to increase interest rates by 0.25% and indicate a “wait and see stance”. The Dollar can see plenty of volatility depending on the Fed’s decision and guidance.
When analysing the price, the exchange rate only indicates an upward trend. The price trades within the upper band of the Bollinger bands, above moving averages and the Ichimoku Trading Clouds. The only concern for technical analysts is the exchange rate is hovering at a significant resistance level and has already increased by more than 3% over the past few days.
Summary:
- After another bank collapse, JP Morgan and other large banks agree to purchase First Republic Assets. However, many economists continue to advise the US is not heading towards a credit crunch.
- The US stock market loses momentum, but investors turn their attention to the latest economic data and today’s earnings reports.
- The Japanese Yen continues to be the worst-performing currency. Over the past three weeks, the Yen has lost over 4.30% of its value.
- Economists expect the Federal Reserve to increase interest rates by 0.25% and indicate a “wait and see stance”.
