Weekly Focus: The Fed, the Recession, and Big Tech

This super week is being overwhelmed by many events and expectations. It is the most intense week of 2022 so far. Whether  all this action will lead to super market waves within the week is yet to be shown. Microsoft and Google-parent Alphabet are expected to begin the wave on Tuesday when they deliver Q2 2022 earnings reports. These are not only the leaders of the tech sector, but also leaders of the entire stock market. It they meet analysts’ estimates, stock indexes may have a reason to perform a rally, especially if Meta Platforms, Apple, and Amazon confirm these positive expectations by delivering strong earnings reports this week.

The Federal Reserve (Fed) interest rate decision and the first Q2 U.S. GDP estimate with a possible recession indication would be the major hurdles for the S&P 500 broad market index to rise towards 4150-4250 levels. However, strong Big Techs reports may affect the market in the most positive way, neutralising possible negative impacts from weak economic data. We may have different scenarios this week as Big Techs may play a leading role in pushing the market to the upside.

First, moderate positive earnings reports from Big Techs along with a slight U.S. GDP decline for the Q2 2022, together with the decision of the Fed to raise interest rates by widely expected 75 basis points, may deliver a positive upside signal for stock markets. Mild and fleeting recession in the United States and a less hawkish rhetoric from the Fed may form positive hopes for investors. There could be more unpleasant combinations of factors for investors to consider, like neutral Big Techs reporting, the Fed hiking interest rates by 75 basis points, and positive number on Q2 U.S. GDP. However, this may also allow U.S. stock markets to edge higher considering existing technical indications.

The S&P 500 index has switched to the aggressive technical formation with the targets at 4150-4250 points by the end of this week. It is trading close to the 3960-3980 area. The nearest support is at 3870-3890 points and this may allow investors to consider some very risky long positions which may cause a possible rally.

Brent crude prices rolled back to $102-103 per barrel with no signs of a rally, nor of a slide. The timing of an aggressive upside scenario with the targets at $135-145 per barrel and extreme peaks at $160-170 suggests possible strong price movements in the second half of August. Some buy opportunities could be found at the support levels of $97-99 per barrel. The resistance at $107-110 per barrel would be crucial for the upside scenario to become active, so it should be monitored in this regard.

Gold prices may have an upside season in August. But this rally could be very risky and unstable, as gold is more inclined to the downside with a possible plunge to $1350-1450 per troy ounce by the end of November. So, it would be wise to wait for gold prices to climb first to $1800-1820 per ounce and only then open short positions in September.

EURUSD continues to hover alongside the aggressive upside channel with targets at 1.03500-1.04500 by the end of this week. There are no reliable entry points for any trades so far.

GBPUSD is also inside the aggressive upside formation with targets at 1.21500-1.22500 without any reliable entry points. We may expect the situation on the Forex market to stabilise by the end of the week and receive some directional signals.