May’s inflation
figures in the United States of 8.6% year-on-year trampled any hopes for a
summer stock market rebound. At 8.6% the Consumer price index (CPI) has a vast
distance from the 8.3% recoded in April as the index did not include much of
crude prices which surged by 11% and June crude prices which were up by 6% with
a possible upside to $170-180 per barrel in June and July.
This upside may mean that
prices could rise by 9.0% year-on-year in June, and 10-11% in July. It is hard
to imagine that the Federal Reserve (Fed) will keep its interest rates at 2.0%
in June and July with such CPI results. It is more likely that the Fed will
have no other choice but to increase interest rates by 75 bps in June to 1.75%
and by 125-150 bps to 3.0-3.75% in July. This is a nightmare scenario for the
stock market and commodities too. Goldman Sachs and JPMorgan upgraded their
forecast for the Fed interest rate hikes by 75 bps in June and another 75 bps
in July.
Such expectations may
erase any hopes for a summer recovery as the S&P 500 broad market index
spiralled within an aggressive downside pattern with the primary target at 3650-3670
points, and additional aggressive downside targets at 3450-3550 points.
So, what would be the
reaction of the Fed when prices lift-off in June and July and how will the
market react? In such a situation any long operations on the S&P 500 index
are likely to be put aside not only for this summer but for the whole of 2022.
It would be wise to seek for short position opportunities, although now there
are none seen in the market.
Brent crude prices
continue to climb above the second resistance at $124.0 per barrel. Once the
market is detached from it, prices may rise
further up to the third resistance level at $135.0-137.0 per Bent barrel. This
is the final resistance level before extreme targets at $160.0-180.0. These
extreme levels could be reached by the end of June or in early July.
Gold prices are
looking for the downside until the end of July. Prices rose to $1879 per troy
ounce, a perfect opportunity to open short positions, then they scaled back to $1820
per ounce. The first targets of this movement are located at $1730-1750 per
ounce.
The Greenback has
strengthened dramatically as the EURUSD dropped to meet its downside targets at
1.03000-1.04000. The pressure of the strong Dollar is likely to continue this
week, but the pair is unlikely to slide below 1.04000.
GBPUSD is much more
vulnerable this week after it crushed to the 1.21000-1.22000 area with a
possible slide to 1.19000-1.20000. This week the Bank of England (BoE) may take
another interest rate decision to tame inflation, while the Fed’s highly likely
interest rate hike would certainly put extra pressure on the Pound. So, this
week it is better to avoid short positions, while long positions would be in
sight after the Fed meeting this week.