- U.S. regional banks plunge, reigniting credit fears and risk-off sentiment
- Aussie hammered after surprise spike in unemployment
- EUR/AUD and GBP/AUD break higher with bullish momentum building
Summary
U.S. regional bank stocks cratered Thursday, reigniting credit fears and validating Jamie Dimon’s stark warning earlier this week about hidden risks in private credit. The risk-off tone and a surprise jump in Australian unemployment hammered the Aussie, driving EUR/AUD and GBP/AUD to multi-month highs.
2023 All Over Again?
U.S. regional bank stocks were hammered Thursday, reigniting credit concerns and lending weight to Jamie Dimon’s warning earlier this week that years of easy money may have masked deeper risks. Zions Bancorp plunged 13% after disclosing surprise loan losses in California, while Western Alliance dropped nearly 11% after suing a borrower for fraud.
The carnage followed Dimon’s caution that cracks are emerging in the $1.7 trillion private credit market after JPMorgan booked a $170 million hit tied to subprime lender Tricolor and the collapse of auto parts maker First Brands. As Dimon put it, “when you see one cockroach, there are probably more.”
Mirroring the reaction in 2023 when concerns about the credit quality of regional U.S. bank asset books were last elevated, cyclical assets underperformed, including the Australian dollar. Combined with an unexpected surge in Australian unemployment in September reported earlier in the session, it saw the Aussie underperform against European currencies like the euro and British pound.
EUR/AUD Delivers Bullish Breakout
Source: TradingView
EUR/AUD put in the most impressive of the moves, breaking resistance at 1.7945 before eventually stalling at minor resistance at 1.8060. Now sitting at multi-month highs, the break of the prior sideways range provides multiple setups to consider depending on how near-term price action evolves.
Buying dips and bullish breakouts is favored in the near term, a view complemented by signals provided by RSI (14) and MACD which both point to building bullish momentum.
For those looking to play the pair from the long side, a pullback toward former resistance at 1.7945 would present a decent entry level, allowing for positions to be established above the level with a stop beneath for protection. 1.8060 or 1.8150 both screen as logical nearby targets. Alternatively, a push above 1.8060 would provide the opportunity to buy the break with a tight stop beneath, targeting 1.8150.
However, should the bullish move be unable to extend, the setup could be flipped, allowing for shorts to be established beneath 1.8060 with a stop above for protection. 1.7945 provides as an initial target.
GBP/AUD Battle Looms at 2.0750
Source: TradingView
Like EUR/AUD, GBP/AUD also broke to multi-month highs on Thursday, moving above a resistance around 2.0630 before stalling at 2.0750, a level that acted as both support and resistance earlier this year.
RSI (14) sits above 50 and is trending higher, providing a bullish momentum signal confirmed by MACD. Playing the pair from the long side is therefore preferred.
With the price near 2.0750 resistance, the level can be used to build trade setups around depending on whether Thursday’s bullish move can extend. A break and hold above 2.0750 would allow for longs to be established with a tight stop below for protection, targeting either minor resistance at 2.0866 or a more pronounced resistance zone above 2.10.
However, if the pair cannot break and hold above 2.0750, it would allow for shorts to be established beneath with a stop above for protection, targeting 2.0630 initially.
