Home > Daily Market Recap for 22/03/2021: Fed to the Rescue, Emerging Markets Volatility, European Banks Under Pressure

Daily Market Recap for 22/03/2021: Fed to the Rescue, Emerging Markets Volatility, European Banks Under Pressure

The trading week ahead is marked by the Federal Open Market Committee (FOMC) members holding various speeches. Every single day of the week ahead, there is at least one FOMC member speaking, suggesting that the Fed prepares its forward guidance ammunition after the interest rate decision and press conference from last Wednesday. 

The markets were spooked at the opening today by news from Turkey. As it turned out, Turkey’s President, Erdogan, ousted the central bank’s chief, and the news created a gap on most financial assets at Monday’s opening. The problem comes from the signal that the decision sends – instability in Turkey means instability in emerging markets. Moreover, European banks have exposure to Turkey, so the announcement increased the volatility on most European assets too.

As such, European stock indices opened in the red. BBVA, one of the biggest Spanish banks with exposure in Turkey, is down over 6% at the time of writing this article, despite the fact that it has hedges that protect the bank from such instability. U.S. futures remain stable so far, but the risk is that the emerging markets news will spillover once North America starts trading.

Oil recovered some of last week’s losses and now trades above $61, while copper, natural gas, and gold opened the day flat. Silver is weak, trading at $25.59, over 2.5% lower than the opening levels.

Daily Analysis

The day is light from an economic data point of view, but full of FOMC members’ speeches. The Fed had an incredibly difficult task last week when it announced its intentions to remain accommodative despite the fact that the economy is recovering faster than expected and inflation is rising.

Therefore, this week we will likely see the Fed members insisting on the need for further accommodative policies, with a strong impact on the dollar.

Markets to Watch

DJIA, AUDUSD, USDJPY – markets in focus today.

DJIA

Dow Jones remains close to all-time highs but formed a rising wedge in the meantime. The round number still attracts and should provide support on any move lower. A divergence with the RSI does not help any bullish case.

AUDUSD

The AUDUSD pair retested the lower trendline of a rising wedge pattern and got rejected again. The AUD is still elevated considering that the Reserve Bank of Australia is actively pursuing its yield curve control policies.

USDJPY

Last week, the Bank of Japan announced that it is widening the yield curve control band, and that should support the JPY. The USDJPY pair looks stretched at the current levels, especially considering the fact that it lacks momentum.

Winners and Losers

The European banks are the main losers so far in the trading day, due to the news from Turkey. On the winning side, the JPY looks strong as it gained both against the USD and the EUR.

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