The EU50 index has recovered from a sell-off to the 4,000 level after the Credit Suisse takeover. Should investors be going long or short on this index?
EU50 – Daily Chart
The EU50 was strong in late-2022 as it erased a severe downtrend into 2023.
The recent failure at resistance was a warning for investors, and the latest move may not last. The euro has had its share of significant problems over the last year as the Ukraine conflict led to sharp energy price rises and inflation.
The Swiss financial regulator and its central bank have saved Credit Suisse from a messy demise. Still, they have also rattled European bond markets with the hasty takeover. Foreign investors may think twice about investing in European banks after shareholders were saved before the bondholders.
EU50 Index Forecast
The $19 billion loss in Credit Suisse AT1 bonds marks the largest ever in the $275 billion market. It is well above the $1.44 billion lost in Spain’s Banco Popular in 2017.
The situation in Ukraine shows no sign of finding a peaceful resolution. The Polish ambassador said his country would have “no choice” but to “enter the conflict” in Ukraine if the government fails to defend itself.
The EU50 may seek a further correction to the 3,800 level, and investors should be wary of buying the latest increase in price.
