US Dollar, First Republic Bank, Fed Balance Sheet – Asia Pacific Market Open:
- US Dollar rises as Frist Republic Bank poised to obtain funding
- Federal Reserve stability sheet soars, it’s not quantitative easing
- DXY eyeing a rising channel, will broader uptrend resume forward?
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Asia-Pacific Market Briefing – First Republic Bank, Fed Balance Sheet
The US Dollar outperformed its main counterparts on Thursday as monetary market volatility continued cooling within the wake of final week’s collapse of Silicone Valley Bank. Reports crossed the wires that First Republic Bank, one of many regional lending establishments caught within the storm, was poised to obtain about 30 billion of rescue help from among the nation’s largest banks.
Front-end Treasury yields rallied, with the 2-year price hovering virtually 7% over 24 hours. This means that maybe some monetary uncertainty was taken off the desk, opening the door for the Federal Reserve to maybe proceed with its tightening operation to convey inflation down. The Dow Jones, S&P 500 and Nasdaq Composite rallied.
Meanwhile, it was revealed that the Fed’s stability sheet swelled by a formidable 300 billion. Make no mistake, this isn’t quantitative easing. On the chart under, you possibly can see that whereas total holdings rose, securities held outright (principally Treasuries) and mortgage-backed securities (MBS) continued shrinking as one would anticipate underneath quantitative tightening.
Federal Reserve Balance Sheet
What ballooned was low cost window lending, hovering to 152.9 billion final week. That was greater than what was witnessed throughout the 2008 Financial Crisis and the 2020 Covid pandemic. Discount window lending primarily serves as a safety valve and an extension of credit to alleviate liquidity strains. It is a separate short-term mechanism from the present medium-term price hike/QT regime. You can see how momentary it may be within the chart under.
Discount Window Borrowing
US Dollar Technical Analysis
Looking on the every day chart, the DXY Dollar Index bounced off the ground of an Ascending Channel that was established again in February. This may open the door to cautious uptrend resumption. Immediate resistance appears to be the 38.2% Fibonacci retracement stage at 106.152 in addition to the 200-day Simple Moving Average (SMA).
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DXY Daily Chart
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— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com
To contact Daniel, comply with him on Twitter:@ddubrovskyFX