ECB faces mounting pressure to deliver a decisive response to the recent bank rout that is raising serious doubts on whether they will raise interest rates by 50bps tomorrow as previously indicated. Market expectations for a 50bps hike have dropped to less than 30%, with a 70% chance of just a 25bps hike.
In February’s statement, ECB said explicitly that “the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March”. However, the central bank has a recent history of overturning its intentions, leaving investors uncertain of their next move.
In June 2022 statement, it said “the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting”. But then in July, it hiked the three key interest rates by 50bps.
But of course, that’s just an “intention”. ECB never pre-commits to any policy move.
EUR/USD is now close to completing a head and shoulder top, with left shoulder at 1.0733, head at 1.1032, and right shoulder at 1.0759. Theoretically speaking, firm break of the neckline should have confirmed the reversal pattern already. On the other hand, strictly speaking, the ideal short entry should be on recovery back to the neckline, which might never happen.
To take a middle, decisive break of 38.2% retracement of 0.9534 to 1.1032 at 1.0258 will be taken as confirmation of the reversal. 61.8% retracement at 1.0106 will be the immediate near term target.
Let’s see whether ECB would help complete this technical formation.
Credit Suisse to borrow from SNB to calm markets
Credit Suisse’s measures to ease investor concerns over potential contagion and a banking crisis have failed to lift market pressures, with the Asian markets remaining under pressure.
The bank announced it would borrow up to CHF50B from the SNB, calling it a “decisive action to pre-emptively strengthen its liquidity.” The loan and a repurchase of billions of dollars of Credit Suisse debt aim to manage its liabilities and interest payment expenses.
Earlier, in a joint statement with the Swiss financial market regulator FINMA, the SNB assured the markets that the Credit Suisse had met “strict capital and liquidity requirements” and said, “there are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market.”
“If necessary, the SNB will provide CS with liquidity,” FINMA and SNB said.
Hong Kong HSI gapped down today and is trading down -1.6% at the time of writing. From a technical perspective, the index’s decline from 22700.85 is still ongoing, and unless the 55-day EMA (now at 20256.19) is breached, a further decrease is anticipated. Even as a corrective move, this drop could aim for the 100% projection of 22700.85 to 19783.07 from 21005.66 at 18087.88.