Weekly Summary: Fed’s Trick and Non-Farm Payrolls

The trick performed by the Federal Reserve (Fed) to shape elevated expectations concerning the interest rate hike by 75 basis points was successful. The interest rate was only raised by 50 basis points to 1.0%. This came along with the announcement that monetary quantitative tightening is expected to be performed in June. The S&P 500 broad market index, that it regularly tested in February-April, survived above 4100 points..

This does not alter expectations that the market could decline by 15-20% over the coming 7-11 weeks, but it does offer the Fed an opportunity to raise interest rates by extreme 200-300 basis points to reach 3.0-4.0% while Brent crude prices rally to $160-180 per barrel. This move would decrease the gap between blistering inflation and interest rates which are expected to reach 4.25% in 2022.

Now investors are focused on April’s Non-Farm Payrolls data with a consensus of 391,000 new jobs created in April outside the agriculture sector and unemployment levels at 3.5%. The statistical model shows less positive figures of 250,000-330,000 new jobs created, while the level of unemployment is shown to remain at 3.6%. Either way, the report is expected to be strong. But an unambiguous reaction from the market is yet to be seen as now the S&P 500 index is facing downwards to 3800-3900 points at the beginning of June. For next week the support of the index is expected to be at 4100-4130 points, while the resistance is thought to be at 4200-4220 points. So, the market is expected to be more or less calm by the second half of May.

In contrast, the oil market is set to follow the $160-180 per barrel of Brent crude scenario. All indications for such a scenario are signaling its possible beginning. Brent crude prices are aggressively testing the $112.00-115.00 resistance zone, while Europe is getting ready to ban oil imports from Russia.

Gold prices are in a favorable position of possible rises. This period could last until the beginning of June. However, considering rising interest rates and a possible drop of the U.S. stock market’s long position for gold, this may not be the best option. The nearest resistance levels are located at $1940 and at $2000 per troy ounce. Gold is inclined to gravitate to these levels, and this could provide good sell opportunities.

Volatility on the FX market is rising as the Greenback continues to strengthen. The EURUSD dropped to the extreme lows of 1.04500-1.05500 but there is a possibility of it performing the last downside swing to the 1.03500-1.04500, even right after the release of the Non-Farm Payrolls report today. So, investors should be prepared to open long positions on Euro.

GBPUSD continues its dramatic downside ride reaching 1.22700. The pair failed to rebound as the Bank of England’s meeting disappointed investors. The pair may slide to 1.22400but this could likely be the end of the ride. So, investors could be faced with good buy opportunities next week with targets at 1.27800-1.28000.