On the daily chart below, we can see that sellers eventually managed to take control and push the market lower. The big selloff was extended by the events concerning the failure of the Silicon Valley Bank, which collapsed in just two days. This development spread fears of contagion in the banking system and the market switched to risk aversion going into the weekend.
During the weekend the Treasury and the Fed came up with a solution to protect depositors’ money and created a new emergency lending facility that gave the banks the chance to convert their long term securities at the original value instead of being marked to market. This news gave the market a boost as the futures market reopened and rallied overnight.
On the 4 hour chart below, we can see that the consolidation just below the breakout of the 1920 level was followed by a fakeout, as depicted by the orange circle, and then the start of the selloff.
The market may now pullback to the 38.2 or 50% Fibonacci retracement level ahead of the CPI report tomorrow. The risk mood is still tentative and given the recent events the market has priced out the chance of a 50 bps hike and leans more on the 25 bps move.
On the 1 hour chart, we can see that the sellers are still in control although the recent good news pushed the price up during the Asian trading session. We will see what the American session will give us, but as of now it looks like the buyers will have a hard time fighting against the sellers.
The CPI report tomorrow is what should give the ultimate direction though, a miss and we should see the buyers step in, while a beat would give the sellers complete control and push the market to new lower lows.
