Chapter two – Renewed banking stress

EUR/USD advances ahead of ECB hike

The euro firms up as the ECB is expected to lift interest rates by 25 basis points. On the surface, Eurozone headline inflation slowed down last month but core readings remained stubbornly high. The single currency may benefit from improved fundamentals and the catch-up effect. In contrast to sentiment a few months ago, recessionary pressures have eased across the bloc, and while its US counterpart is set to deliver a final hike, the ECB has some leeway to push a bit further. The market has settled on a 25 bp hike but the upside risk would be a 50 bp move. The pair is heading towards 1.1250 with 1.0850 as the closest support.

AUD/USD softens over dim economic outlook

The Australian dollar struggles amid soft global economic data. Falling core consumer prices in the first quarter caught the market by surprise and might confirm that inflation could be past its peak. This would lessen the pressure for another interest rate hike this month with traders expecting the RBA to leave its cash rate unchanged. Such a dovish stance may compound caution in the commodity markets. Australia being a top copper exporter could see its currency trend lower in tandem with the metal as traders have doubts about global economic growth. The aussie is drifting towards 0.6400 and 0.6790 is the first resistance.

XAU/USD rallies as uncertainties grow

Gold stays well bid as investors fear another financial storm. Plunging deposits at First Republic Bank despite a $30 billion infusion from America's largest banks last month have put the banking sector under renewed pressure. If its peers or the US government fail to stage a rescue, that would send a message to the market leaving everyone wondering who will be next. Even though the gold price has seen some intraday jittery action as the US dollar bounces higher, global uncertainty and concerns about a possible liquidity crunch are supportive for the safe haven metal. The price is hovering above 1950 with 2070 as the immediate target.

S&P 500 holds over resilient earnings

The S&P 500 firms up as solid Q1 corporate results ease recession fears. Against the backdrop of lingering concerns over slowing growth, impressive reports from tech giants Amazon and Meta alike definitely have had a soothing effect. After all, if a recession is to manifest itself, falling consumer and corporate spendings would have taken a toll on the earnings. Yet a series of upside surprises show resilience of the US economy on both the macro and the sector scales. With one more Fed rate hike to go, the market would hope that the economy will sail through without much hiccup. 4310 is a key hurdle ahead and 4000 a major floor.