The Federal Reserve’s (Fed) meeting is within arm’s reach, as the U.S. monetary regulator is expected to announce the tightening of the monetary policy next Wednesday. But investors are more worried with the pace of the tightening rather than with the fact itself.
Fed’s Chairman Jerome Powell and his team are varnishing their unwillingness to tighten the screws due to the Russian-Ukrainian warfare. However, less tightening in the face of 7.9% record inflation may mean a bigger reason to destabilise markets. Investors may consider that galloping energy prices may unwind inflation to 8.5-9.0% over the coming months. This may eventually push the Fed to extreme interest rate hikes. So, the unexpected tightening by the Fed now seems to be the best option. Lifting interest rates by 50 b.p. instead of 25 b.p. would demonstrate control over the economic situation and may contain inflation expectations. This move would prompt high volatility in the market as nobody is expecting such actions from the Fed, but eventually the monetary policymaker will have the advantage while geopolitical factors could be blamed for any negative consequences.
So, what the Fed will choose to do next week is hard to say. Investors will definitely wrestle with this issue until next Wednesday.
The technical picture for the S&P 500 broad market index is rather negative as the index is expected to decline to the 3950-4050 point area throughout next week. Whether the outcome of the Fed’s meeting or the geopolitical factors will have provide the market with the upper hand is really hard to judge. Some aggressive short positions opened at 4310-4330 points could be on hold.
The oil market seesawed this week by the surge of crude prices by 10% to $132 per barrel of Brent crude at the beginning of the week and a plunge of 20% to $105 by Wednesday. Brent crude prices slightly recovered by the end of the week to $110-120 per barrel. But this balance seems to be extremely fragile. The rally may resume soon and no pumping efforts from the United Arab Emirates or a deal from the U.S. and Iran or Venezuela could stop that now.
Gold prices rebounded from all-time highs at $2060-2070 per troy ounce back to $2020 and then slid to $1980-1990 per ounce, preparing to dive deeper to the support level at $1920-1930. Once this level is reached we may expect gold prices to fall to $1840 or even to $1750-1760 per ounce. The alternative scenario that may push gold prices up is the geopolitical tensions over Taiwan.
EURUSD is on the upside track targeting 1.12000-1.13000. After the European Central Bank turned off the money tap the Euro touched 1.11000 and rolled back towards the support at 1.08900-1.09200. Once these levels are reached long positions with the potential targets at 1.10000-1.10200 will be interesting to consider.
GBPUSD is within the downside pattern as all targets of the week were met at 1.31000. The cable is within a potential turnaround area but have no strong support levels in sight. Some aggressive long positions could be considered at 1.30000-1.30200 with a target at 1.31900-1.32000 by the end of next week.