Weekly Summary: Flat Run and May Non-Farm Payrolls

This trading week ends on a neutral note as no major movements were seen in the markets. Copper prices might be an exclusion as they benefited from lockdown easing in China. All other assets are generally moving sideways on a flat run.

Such a scenario is typical for the Non-Farm Payrolls week. Investors cannot ignore this data, and since the report is published on Fridays the trading activity through the week is capped. However, this week investors could have been nervous, especially oil traders, as the new agenda is full of reasons to support elevated volatility. Saudi Arabia said that it may replace Russian oil in the market if needed after the European Union finally made a decision to ban 90% of Russian oil supplies to the EU by the end of 2022, slashing almost two thirds of supplies immediately. The rumors about Russia pulling out from OPEC+ turned to be false, while OPEC+ agreed to increase oil production by 646,000 barrel per day in July after Russia’s production dropped by 1 million bpd.

Nevertheless, all these issues made Brent crude prices retest the $112-115 per barrel support level. Then Brent crude prices reversed to the upside to test the resistance at $120-123 per barrel. Such volatility could have happened without such an information buzz. But now the upside scenario of Brent crude rising to $160-180 per barrel is also fundamentally justified.

The S&P 500 broad market index was not performing any strong directional movements as the slide from 4200 to 4070 points turned out to be a technical correction without the development of any further downside wave. Lael Brainard, a Federal Reserve (Fed) governor, known for her dovish position, said the Fed was likely to continue with its plans for aggressive interest rate hikes in the months ahead without any break. She said it was “very hard to see the case for a pause” as many have hoped the Fed would take one in September to assess the economic situation. This sounds like a deadly verdict for risky assets as the Fed is paving a way to another crisis that may be just compared to the 2008 turmoil. Even if the usually dovish Mrs. Brainard is expressing such bold hawkish rhetoric, we should be certainly prepared for market jeopardy this year. However, markets seem to be complacent  and not ready for another bloodbath. And that sounds prudent as most investors are taking a pause in June and July, while in August a downside pressure may rise dramatically. So, it is of paramount importance to stay focused as we may expect a huge drop this autumn.

Gold prices are posting signs of a downward direction. So, investors may try to open short positions on the current levels with the first target at $1730 per troy ounce. However, a downside perspective for  gold will last until the end of July, and that gives us plenty of time to use this perspective.

The FX market went into consolidation ahead of the May Non-Farm Payrolls report on Friday. Our statistical modeling suggests a weaker than expected labour market report with 102,000 to 275,000 new jobs created last month missing consensus of 325,000. Unemployment may remain at 3.6% after a drop of Initial jobless claims by 81,000 in May.

EURUSD is following the aggressive upside pattern with a possibility of hitting the upper margin of the 1.07500-1.08500 target range. The Non-Farm Payrolls release could be just a good moment for such upside.

GBPUSD pattern has changed to the downside with a strong support level at 1.24900-1.25100, and strong resistance at 1.25900-1.26100. The downside for the pair may continue over the next week. So, any level above 1.26000 may offer good sell opportunities.