Markets remain cautious to start all-important Fed week

Financial markets started the new week on a cautious note despite the weekend’s encouraging headlines regarding the global liquidity issues. Eurostat will release January Trade Balance data later in the session and Germany’s Bundesbank will publish its monthly report. European Central Bank (ECB) President Christine Lagarde will testify before the Committee on Economic and Monetary Affairs (ECON) of the European Parliament in Brussels at 14 GMT.

Late Sunday, Swiss authorities persuaded UBS Group AG to buy Credit Suisse Group AG in the next step to try and stop the spread of the banking crisis. UBS will reportedly pay $3.23 billion for Credit Suisse and assume up to $5.4 billion in losses in a deal that is expected to close by the end of 2023.

Meanwhile, the Federal Reserve (Fed) announced that it will offer daily swaps to the Bank of Canada (BoC), the Bank of Japan (BoJ), the Swiss National Bank (SNB) and the European Central Bank (ECB) to ensure they have enough liquidity to continue operations. “The network of swap lines among these central banks is a set of available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets,” the Fed said in a statement published on Sunday.

Despite these developments, US stock index futures were last seen losing between 0.7% and 1% on the day. The benchmark 10-year US Treasury bond yield is down more than 3% on the day at 3.3% and the US Dollar Index trades modestly lower on the day below 104.00.

Although EUR/USD opened with a bullish gap and rose above 1.0700 to start the week, it lost its traction and retreated toward 1.0650 in the early European morning. The data from Germany revealed that the Producer Price Index (PPI) declined by 0.3% on a monthly basis in February following January’s 1.2% decrease.

GBP/USD touched its highest level since mid-February above 1.2220 in the Asian session on Monday. The pair, however, reversed its direction and declined below 1.2200, retracing the majority of its daily gains in the process.

Following Friday’s impressive upsurge, Gold price continues to push higher early Monday amid falling global yields. As of writing, XAU/USD was trading at its highest level since April slightly above $1,990.

With the Japanese Yen benefiting from souring market mood, USD/JPY came under bearish pressure and was last seen trading deep in negative territory at around 131.00.

Bitcoin extended its rally over the weekend and advanced beyond $28,000 for the first time since June. Early Monday, BTC/USD is staging a downward correction and was last seen losing 1% on the day at $27,800. Despite having struggled to find direction over the weekend, Ethereum gained more than 10% last week. ETH/USD stays relatively quiet early Monday and fluctuates at around $1,770.

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