Sudden panic entered the market over the weekend that sparked a major downturn in stocks and USD. What are known as Silicon Valley Bank (SVB), reported a $2 billion loss in their investments as a result of interest rate hikes. This caused a severe sell off over the next trading session. The goal of this article is to help explain what happened in this most recent banking collapse and why certain assets are reacting the way they are.
What Caused the SVB Collapse
Here is a brief summary of what happened according to USA Today:
Back in 2020-21, when interest rates were low, the Fed-fueled rally had taken bond yields to nearly 0%, causing a spike in bond prices. The bank decided to invest in bonds for the long as a result. However, the Fed began raising interest rates, and this caused bond prices to fall. This weekend, SVB announced that they had lost $1.8 billion from bond investments.
When the public saw this, the bank's stock cratered lower. Panic withdrawals occurred as over $150 billion of SVB's value was lost in a matter of hours. Bond yields, stocks and USD tanked while gold soared. Other regional banks fell in fears of a larger collapse. This was one of the biggest bank failures in US history.
What This Means For The Markets
In order to prevent another calamity like 2008, the Fed may have to step in and keep these failures to a minimum. The problem of inflation still remains, and Powell has to be careful not to repeat 2020's stimulus scheme that bailed us out but caused higher inflation in the first place.
Broken banks tend to hurt stocks and help gold. In this particular case, USD might also be bullish. Here are some trade setups on these assets.
SPX500
In the last 2 days, SPX500 fell as much as 2% following the SVB news over the weekend. Price has a nice level of resistance on the 4H timeframe where there is a falling trend line coupled with a double top around $3924.
Gold
Gold went up as much as 3.7% since the collapse and is testing resistance in the $1920s. A close above this zone could take price up to the $1950s which was a 2023 high.
DXY
The USD jumped up from its 50 DMA on the 1D timeframe and regained about half of what it lost in the last three days. Resistance lies around 105.480.
A1 Edgefinder
AI- Generated Trading Setups
AI-generated bullish/bearish bias setups on forex currencies, gold, & indices.
GDP numbers came in lower than expected in the US, marking the third straight drop in economic output. This is usually good news for the stock market indices and gold, however, bond yields continue to hold up above 5.1%. Here are some potential trade setups for both dollar and index longs depending on how the […]
Hi, I’m Nick! I am the founder of A1 Trading, market analyst, YouTuber, and creator of the EdgeFinder software tool. I caught a huge winner on USoil with the help of the EdgeFinder! In this article, I’ll walk you through my thought process behind the trade and how I found this crazy runner! Finding My […]
Last Friday's report showed a significant change in global market sentiment from smart money. What COT signaled has turned ultra-risk-off for traders who have been hoping for Fed fears to subside. This news could spark up worries about higher interest rates for the long term. EdgeFinder Analysis GBPUSD is now a -12 on the EdgeFinder […]
DISCLAIMER: All comments made by TraderNick’s Forex Group, LLC are for educational and informational purposes only. All comments should not be construed as investment advice regarding the purchase or sale of any securities or financial instrument of any kind. Please consult with your financial adviser before making an investment decision regarding any securities or financial instruments mentioned by TraderNick’s Forex Group, LLC. TraderNick’s Forex Group, LLC assumes no responsibility for your trading and investment results. All information on any of the platforms utilized by TraderNick’s Forex Group, LLC was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. TraderNick’s Forex Group, LLC, its employees, representatives, and affiliated individuals may have a position or effect transactions in the securities and financial instruments herein and or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading of any type involves very high risk and may not be suitable for all investors. TraderNick’s Forex Group, LLC, its subsidiaries and all affiliated individuals assume no responsibility for your trading and investment result. Read our full disclaimer here