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.