USD/JPY Soars as Investors React to Banking Industry Developments

Takeaways

• USD/JPY jumps on positive investor reactions to banking industry developments.
• Powell considers potential pause in rate increases.
• St. Louis Fed President indicates further rate hikes remain a possibility.
• U.S. Financial Stability Oversight Council declares U.S. banking system “sound and resilient.”

Overview

The Dollar/Yen is trading sharply higher on Monday as investors reacted positively to moves made by authorities and regulators to rein in worries over the global banking system. The Forex pair was also lifted by a jump in U.S. Treasury yields as investors weighed banking sector developments.

At 10:42 GMT, the USD/JPY is trading 131.504, up 0.783 or +0.60%. On Friday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $71.24, down $0.11 or -0.15%.

The Federal Deposit Insurance Corporation announced on Monday that First Citizens BancShares Inc. will take over all of Silicon Valley Bank’s deposits and loans under the supervision of the regulator.

Despite pressure on some institutions, the U.S. Financial Stability Oversight Council declared the U.S. banking system “sound and resilient” on Friday. However, investors remain cautious.

On Monday, U.S. Treasury yields rose as investors evaluated the recent developments in the banking industry, and concerns about its future subsided somewhat.

Investors Analyze Banking Industry Developments

On Monday, investors analyzed new developments in the banking industry. The U.S. Federal Deposit Insurance Corporation (FDIC) announced that First Citizens Bank & Trust Co would acquire the deposits and loans held by the now-defunct Silicon Valley Bank.

First Citizens Bank will purchase SVB assets worth around $72 billion at a $16.5 billion discount, while the FDIC will oversee the remaining $90 billion worth of SVB’s holdings for disposition.

In other news, Deutsche Bank shares appeared to rebound from Friday’s selloff, which was triggered by a surge in its credit default swaps. The shares were up in pre-market trading.

Recent weeks have seen investors express concerns about both regional and global banks, as they worry whether SVB’s collapse and Credit Suisse’s acquisition by UBS are signs of sector-wide contagion.

The turmoil in the banking industry also influenced the Federal Reserve’s latest policy decision, which saw the central bank increase interest rates by 25 basis points. Federal Reserve Chairman Jerome Powell said last week that the bank was considering a potential pause in rate increases.

St. Louis Fed President James Bullard suggested on Friday that the Federal Reserve would need to balance policy decisions that minimized stress in the financial system with those that eased inflation, indicating that further rate hikes remained a possibility.

Technically Speaking…

The main trend is down, but the intraday momentum on Monday is trending higher. The key level that is likely to determine the direction of the USD/JPY into the close is the Fibonacci price at 131.308.

A sustained move over 131.308 will indicate the buying is getting stronger. This could trigger a short-term rally into the 50% level at 132.569.

A sustained move under 131.308 will signal the return of sellers. This could trigger a quick break into a minor pivot at 130.605, followed by last week’s “banking crisis” low at 129.641.

For a look at all of today’s economic events, check out our economic calendar.