ECB delivers 50 Basis point increase.

Today in the European Session we anticipate the Eurozone’s HICP rate for February, although we do not expect it to significantly deviate from the preliminary rate of 8.5%. Yesterday the ECB hiked interest rates by 50 basis points as was expected in yesterday’s report and following President Lagarde’s speech during the last meeting on the 2 of February. However, it is vital to mention that the ECB’s market outlook has changed since the last meeting as seen in the Monetary Policy Decisions statement where there is a noticeable change in the mention of the Banking Industry as they attempt to re-assure investors that “The euro area banking sector is resilient, with strong capital and liquidity positions”. The meeting was of crucial importance following the near collapse of Credit Suisse in the past few days, with many investors fearing an SVB scenario in Europe. Furthermore, we note that the ECB anticipates that “Inflation is projected to remain too high for too long” implying that they could potentially keep hiking rates, although a noticeable distinction is that they have not clearly indicated as was the case last time by how many basis points they may hike in the future if actually so. As such the recent events seem to have acted as a warning sign that the financial industry may not be as resilient as the ECB thought it was, as seen by the statement “ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed”.

Hence the bank is already sending out a warning that it may provide assistance if needed and to the degree needed should that be necessary, practically reassuring the markets. Furthermore according to Bloomberg yesterday, Switzerland’s largest party said it was against a state guarantee for Credit Suisse as such and should the turmoil continue within Credit Suisse we could anticipate political backlash and a lack of support within the SNB for further aid as the Swiss People’s Party holds two seats on the Federal Council.The news failed to move CHF significantly, yet highlight that Credit Suisse after the assistance received from SNB has now to regain its clientele in order to restart operations in a more normal manner. Also we highlight SNB’s interest rate decision next week, at which the bank is anticipated to hike rates once again straining the Swiss financial environment. Across the pond we anticipate the US Industrial Production rate for the month of February and the University of Michigan’s Consumer sentiment for March. We should note that yesterday Initial jobless claims came in lower than anticipated thus potentially indicating a more resilient labour market despite higher inflation which could provide some confidence to the Fed when they are meeting next week.

More importantly last night a coalition of banks including JP Morgan, Citigroup, Bank of America, Wells Fargo, Morgan Stanley and Goldman Sachs announced that they would be collectively depositing $30 Billion in First Republic Bank following its dramatic fall of 50% in the past 5 days, which may support the banking sector and could boost market confidence.

The EUR/USD has been on an upwards trajectory since the 15 of March 2023 appearing to have bounced off the 1.0535 (S1) support level. We currently hold a bullish outlook in the event that the pair is able to break through resistance at 1.0680 (R1) as it would validate the upwards moving trendline should also the RSI indicator clearly jump above the 50-midway benchmark. For our Bullish outlook to continue we could see the resistance at 1.0770 (R2) be tested, should the R1 be broken. In the event of a Bearish scenario, we may see the pair breaking the upward trendline with support at 1.0535 (S1) and the next support line being possibly at 1.0430 (S2).

USD/CHF failed to break through resistance at 0.9325 (R1) level. We hold a neutral outlook as the pair is currently testing support at 0.9250 (S1). If the Bears continue to lead the pair, we may see a test of support at 0.9165 (S2) to validate a Bearish outlook as RSI is currently at 50 and a clear move below could indicate that the Bears are now in full control of the pair. In the event of a Bullish outlook, we could see a test of resistance at 0.9325 (R1) with the next possible target for the bulls being the 0.9435 (R2) resistance line.