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Weekly Focus: The Fed, Lagarde, U.S. Debt Ceiling, and Other Statistics

A week full of events started on a flat note as Asian and European indexes were mixed but were primarily looking down. The U.S. Dollar is recovering after this morning’s losses while crude prices are slightly going down.

These slightly pessimistic tunes are relatively common for Mondays but as today is Martin Luther King Jr. Day in the U.S., the holiday  is greatly contributing to lower trading activity. The next four trading days are expected to be much more eventful. The Q4 2022 reporting season will resume on Tuesday after the Bank of America and JPMorgan slightly surprised investors with better-than-expected revenues, while Wells Fargo and Citigroup were disappointing. The show will continue on Tuesday with Morgan Stanley and Goldman Sachs that are known to traditionally beat forecasts with the strongest results in the sector. Netflix will take over on Thursday, while macroeconomic data, Davos Forum statements, and the expected reach of the debt ceiling in the U.S. are expected to shape the landscape of this trading week.

Macroeconomic data will begin with China’s 2022 Gross Domestic Product (GDP), December Consumer Prices Index (CPI) for Canada, the UK and the Eurozone, as well as December Producer Prices Index (PPI) and retail sales in the U.S.. Forecasts suggest further cooling down of the global economy, while the speed of such a slowdown remains clouded.

Federal Reserve (Fed) members are expected to give quite a few speeches this week in which they are thought to provide details on the Fed’s plans amid seemingly lower inflation threats. The European Central Bank (ECB) President, Christine Lagarde, will also speak on Friday  but first she has to understand what the Fed will do this year amid slowing but still high inflation.

The U.S. is expected to reach its debt ceiling at $31.4 trillion this Thursday, according the U.S. Treasury. This may force the ministry of finance to introduce extraordinary vehicles to finance government spending that would consequently lead to higher Dollar liquidity that could limit the effects of the Fed’s hawkish monetary policy. But the debt ceiling issue is usually a whistle for Republicans and Democrats to begin large debates around the economic policy that may have negative implications in the market during the existing, tangible and potentially negative situation.

Technically, the S&P 500 index is within the upside formation with the primary target at 4100-4200 points. The index is now in the resistance zone between 3980 and 3990 points. It is likely to continue within this range in the first half of this week, or a scale down towards the support at 3900 points. The second half of next week is expected to be more positive, as the index may climb to the next resistance level at 4060-4090 points.

Brent prices are slightly rolling back to the area of $84-85 per barrel. Overall, Brent crude prices over $78-80 per barrel are seen to be a temporary departure from this level which could end a new selloff wave to the nearest support at $68-70 per barrel. The lowest targets are currently seen at $60-70 per barrel. The outlooks of the International Energy Agency and the Organisation of the Petroleum Exporting Countries (OPEC) concerning the crude market  that are expected to be released this week, may whip up market activity.

Gold prices are moving inside the mid-term, upside formation with targets at $2000-2100 per troy ounce by the middle of 2023. As prices have exceeded the upper margin of $1880-1900 per ounce,  the outlook for future price movements is quite uncertain. Odd price growth over the last week may suggest a further price rally without any stopovers, but also signal a possible swift change of a trend to the downside during elevated volatility.

The money market has been divided. It continues to experience elevated volatility that prevents the use of short-term signals. So, it is better to place orders that are attached to longer perspectives. But now the U.S. Dollar is seen to be weaker against some currencies and stronger towards others like the Euro. Whether or not we will see the Dollar moving in different directions against a basket of other currencies remains to be seen in January. Nonetheless, short trades for EURUSD opened at 1.06700-1.07200 with a downside target at 5000 points below the opening level and the same 5000 points for a stop-loss order should be considered very attractive this January.