Credit Suisse: Key Cogs in USD and Yield Market Forecasting (Technical Analysis)

Over the past few days, there have been a number of bleak circumstances surrounding European banks, particularly Credit Suisse Group AG (CS). This weighs heavily on risk sentiment.

Looking at the technical chart, We are starting to see some correlations between key markets.

One is that the Credit Suisse chart is key. Because obviously everyone is looking at that problem (or perceived problem). Interestingly, CS rallied to throw in a bullish reversal hammer on his October 3rd. This hammer formed when the stock hit new lows, but managed to bounce back to close at the day’s highs. Since then, we have seen a decent follow-through through price increases.

Daily Chart: Credit Suisse

Yields actually fell in the last few days when CS stocks rose. In the charts below showing Eurozone 10-year yields and US 10-year yields, both markets fell at about the same time that CS stocks bottomed out soon.

Chart of Credit Suisse (top) against Eurozone 10-year yields (middle) and US 10-year yields (bottom)

Yield direction is very important. Higher yields have dampened risk sentiment, leading to a rise in the US dollar (“USD”) as a safe-haven currency.Over the past few months, yields have risen, the US dollar has risen, and equities have fallen. Did.

Now the market is starting to see lower yield pricing as a result of the Credit Suisse saga. Bank troubles (actual or perceived) may cause central banks to ease credit conditions going forward. Or at least, that’s what the market is starting to expect.

Another important observation is that the rebound in the CS share price also led to an appreciation of the Euro against the US Dollar. This could be due to a decline in demand for the US dollar as a safe-haven currency and/or an improvement in risk sentiment for eurozone currencies.

Chart of Credit Suisse (upper panel) against EUR/USD (lower panel)

Nonetheless, there is still a close correlation between yields and the US dollar, with higher yields strengthening the US dollar and vice versa. As mentioned earlier, lower yields and a weaker US dollar are needed to bottom out risky assets. The CS chart could be a key cog for yields and the future direction of the US dollar.

The euro’s outlook against the US dollar is a key determinant for the dollar index, as the euro is the largest component of the dollar index. Looking at the EUR/USD chart, the currency is currently testing the top of the downtrend channel. We expect a drop here, but if we start to see a correction at current levels, it means the market may be gearing up for a higher breakout.

Daily chart: EUR/USD

If EUR/USD rises, it is a positive sign for risk assets. In doing so, we expect the US dollar’s dominance over other major currencies to weaken. We also expect CS stocks to rebound with the euro. This should also reduce credit-related risks in the market, leading to lower yields. Modern markets are inherently correlated, so I wouldn’t be surprised if these markets move in unison in the coming weeks.