Weekly Summary: Bostic Has “Stopped” S&P 500 Decline

This week was rather quiet with no surprises. The S&P 500 index edged lower by 0.2% to 3982 points. Brent crude prices rose by 2.0% to $84.9 per barrel, while the U.S. Dollar index retreated by 0.7% to 104.68 points.

Investors were participating in a tug-of-war between strong macroeconomic data from China and hawkish remarks from Federal Reserve (Fed) officials. Unexpectedly high business activity indications in China confirmed its rapid recovery after the substantial lifting of COVID restrictions and the reopening of the economy. This fueled quite a lot of optimism in the markets.

On the other hand, Fed officials continue to bombard investors with hawkish rhetoric to beat out inflation expectations. Most of the week this helped to keep the stock market under pressure, as the S&P 500 index tested the support level at 3920-3940 points. Suddenly, Atlanta Fed President, Raphael Bostic, said that the Fed would be in a position by mid to late summer to pause interest rate hikes after bringing them to 5.0-5.25%. Later he added that he is going to stay open to higher interest rates over the coming months in case economic data comes out stronger than expected. The S&P 500 index jumped to the 3982 points on the news.

Services Purchasing Managers’ Index (PMI) data, that will be released on Friday, may cool investors optimism as it is expected to be strong, and may eventually prompt the Fed towards additional interest rate hikes. Other Fed officials that will be speaking next week are expected to add some hawkish tunes to the market to tame rising inflation expectations.

Technically, the S&P 500 index continues to move down to 3650-3750 points. The index is in the middle of the strong resistance level at 4010-4030 points and the support level at 3920-3940. Testing the support is a more likely scenario.

The oil market is nearing a decisive moment, as Brent crude prices are consolidating in the middle of the wide trading range of $79-89 per barrel. This time the price is ready to breakthrough and recession logic suggests that prices are likely to go down.

Gold prices are moving inside the mid-term, upside formation with targets at $2000-2100 per troy ounce by the middle of 2023. Prices have failed to dive below the support level at $1790-1810 per ounce, and are recovering to $1840-1850 per ounce. Still, the support level at $1790-1810 per ounce should be monitored. If prices pass this support level and continue down, then the scenario of a possible change of trend to the downside may become a reality. In this case prices may rewrite last year’s lows of $1600-1650 per ounce.

The money market has finally followed upside signals of the American currency. The Dollar may continue strengthening. Considering the high volatility in the market, it is better to place orders attached to longer perspectives. 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. The decline of the EURUSD to 1.05000-1.05500 could be used to close half of the trade, and the other half should be continued until the targets of 1.03000-1.03500 are met.