SVB-Collapse Triggered Risk Aversion

Welcome to a new trading week. U.S. Treasury yields and the dollar tumbled in the wake of Silicon Valley Bank’s collapse last week. The market fears that there is again the risk of contagion, a deteriorating risk sentiment and a broader financial crisis. However, the Treasury Department said that it is a very different situation to 2008. If the authorities are successful in corralling contagion risks, Treasury yields and the greenback may find support. It now remains to be seen whether or not the SVB’s collapse triggers a chain reaction.

On Tuesday, the U.S. consumer price index for February is due ahead of the Federal Reserve meeting on March 22. The market had previously been leaning toward a 50 bp rate hike but now sees a 25bp move more likely. If tomorrow’s inflation data shows hotter-than-forecast results, the dollar’s recent decline may prove to be short-lived.

On Thursday, euro traders will get the next European Central Bank rate decision. The ECB is expected to raise rates by 50 bp this week. On the back of a weaker U.S. dollar, the EUR/USD is pushing higher, turning the focus to the 1.08-resistance now. Above 1.0810, we may see a run for 1.09. On the flipside the crucial support area around 1.05 remains intact.

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