Risk sentiment subsided as confidence in the global banking sector eroded last week. Credit Suisse spent the week on the front pages as a selloff caused by contagion from the U.S. bank failures filtered through the European market and reverberated across the globe.  

The Dow Jones 30 Futures (CME: YM) shed 1.24% in the Asian session to form a low, which buyers are currently pulling the index from. Traders will have all eyes on Wednesday’s interest rate decision as the Federal Reserve makes a complex decision in the face of a banking sector which is fragile due to high-interest rates. At the same time, sticky inflation calls for higher interest rates to lower it to within the 2% target.  

Technical

The Dow Jones Futures have primarily traded sideways in a consolidation, forming a rectangle pattern. Support and resistance were established at the 31891 and 32582 levels, respectively. Bulls and bears have been battling for control within the support and resistance levels ahead of the key interest rate decision. 

Bulls and bears will likely look to the support and resistance levels for buying or selling opportunities if the consolidation pattern holds. Alternatively, a high volume breakout to either side of support or resistance will likely lead to a sustained move in the direction of the breakout.  

Bulls will look to the 33145 level with interest if a breakout above resistance occurs, while bears will likely look to the 31466 level at the 61.80% Fibonacci Extension Golden Ratio if a breakout below support ensues.  

Summary

According to the Wall Street Journal, 186 U.S. banks have been flagged as likely to experience the same risks as Silicon Valley Bank, Signature Bank and Credit Suisse. This could spell further downside as appetite for risk assets loses out to safe-haven asset demand such as the Greenback or U.S. bonds. The Dow Jones 30 will likely experience further downside price action if a breakout below the 31891 level plays out.  

Sources: Wall Street Journal, Reuters, TradingView