Rebound in stock markets, impulse for gains

Over the weekend, the six major central banks (Fed, ECB, BoJ, BoE, BoC and SNB) decided to strengthen the swap mechanism, which is to improve liquidity in the banking sector. On Monday morning we saw a continuation of the sell-off of risky assets. In the following hours, investors were buying shares again and this finally caused the session in Europe and the US to end above the line.

Gold traded above $2000 an ounce earlier in the week. However, the price was subject to a slight correction.

Crisis prevention

The Fed, along with other major national institutions, issued an official statement announcing that the "action" is aimed at improving the efficiency of swap lines in providing financing in USD. Central banks decided to increase the frequency of seven-day maturity operations from weekly to daily.

Recall that US banks took advantage of the Fed's "discount window" in record numbers last week. On Wednesday, March 15, they lent $153 billion, surpassing the peak of $111 billion on October 29, 2008.

On the one hand, it can be said that central banks are clearly in crisis prevention mode and this process has clear priority over the medium-term goal of combating inflation. If institutions conclude that high interest rates and yield curve inversions are an undue burden on financial systems, they should therefore refrain from further restrictive measures.

However, the ECB showed that the banking sector is under control and recent turmoil did not prevent Lagarde from announcing a 50 bp move. This decision does not necessarily negate this point of view. The institution has proven in the past that it is usually late in switching to the mode of crisis fighting or crisis prevention (rate increases in the summer of 2008 and in the spring and summer of 2011).

On the other hand, it can be concluded that early and strong measures to prevent the crisis are to provide central banks with the necessary field to continue fighting against the high price growth dynamics.

The first interpretation would be probably negative for USD in the medium term. In such a scenario, it can be assumed that the Fed will not raise interest rates any more, or will make a slight move, and in the near future it may decide to make the first cuts. The Federal Reserve may signal that further steps in monetary policy depend on the development of tensions in the financial system.

The second interpretation could be positive for the USD, as market expectations for the path of the US tightening cycle would then have to be revised upwards to a greater extent than for other central banks.

The impulse to rise

Popular index DAX during yesterday's trade "broke out" local lows and tested the horizontal support (14.620 points), which corresponds to the December 13 peak. The pro-growth candlestick pattern suggests that the market is building another impulse to the upside. In the FX market, the dollar was losing. EUR/USD pair it "came out" above 1,07 but failed to beat last week's peak.

The zloty gained in relation to the "green" a the USD/PLN pair set new local lows at 4,38. Against the euro, our currency finally gained in the second part of the day and EUR/PLN fell to 4,6960 for a moment. Currently, the exchange rate is rising above 4,70. There was a slight rebound in the oil market. However, the price of the WTI variety is still low at USD 67,15 per barrel.

Source: Łukasz Zembik, OANDA TMS Brokers