A wild rally in the U.S. stock market continues. The S&P 500 broad market index has dropped to 3631 points but then climbed to 3758 points, bouncing from the day lows. The rise of the index by 3.2% within one day is a very extraordinary situation and there should be a strong reason behind it. But the only driver for such growth was the Wall Street Journal article about a possible slowdown of the Federal Reserve (Fed) interest rate hike cycle – without citing any source from the actual Fed itself
The Democrats need the stock market to be in a positive sentiment to support Democratic nominees during the elections and not to slide in free fall, is needed. This is unlikely to is unlikely to happen if the S&P 500 index dives below 3500 points. The market would slump then, and Democrats would lose control over U.S. Congress and Senate.
The European Central Bank (ECB) has to raise interest rates by 75 basis points. The Q3 GDP in the United States is likely to post positive figures. Big Tech companies are unlikely to add positive tunes to the market but are unlikely to disappoint investors too given low expectations of Wall Street analysts. Such a combination of drivers should be enough to hold the S&P 500 index within the aggressive upside formation by the end of the week. It is very hard to expect the index to hit targets at 3850-3950 points by the end of the week. It sounds more unrealistic but the index hit 3802 points on Monday, so we should not exclude this scenario. The downside target for the S&P 500 index is intact at 2000-2200 points.
Brent crude prices are seen to be testing the support at $88-90 per barrel. This level is a threshold for crude prices not to crash down to deep levels. The aggressive downside formation with targets at $75-85 remains intact. Mid-term expectations for prices are seen to seep down to $50-65 per barrel by November.
Gold prices have slowed down a little on the news that the Fed may hike interest rates less aggressively than expected. Gold prices need to continue declining to $1620 per troy ounce to continue within the downside scenario with the targets at $1500-1550 per ounce. It is very risky right now to add new short positions amid strong geopolitical uncertainties that may push gold prices up.
The money market is experiencing elevated volatility and it is very risky to open short-term positions right now. Considering longer movements there are many mixed signals for the rest of this month. On one hand we may expect the rise of the GBPUSD above 1.17000 by the end of October, while EURUSD is likely to remain under pressure. So, opening long positions for GBPUSD from 1.11500-1.12000 with the targets above 1.17000 are seen to be justified. Nonetheless, traders should exercise such trades at low volumes and tread with extreme caution as it is not expected to be a short-term trade.