The week is ending in a mixed mood as the S&P 500 broad market index added 0.8% to reach 4148 points while the U.S. Dollar slid by 1.5%, which would usually sound a positive tune in the market community. However, gold and bitcoin prices are climbing with a substantial premium to the price of both assets amid a banking quake in the United States and a partial one in Europe. An improving sentiment may deflate this premium and bring gold and bitcoin prices down.
Inflation figures this week are considered to be responsible for the stock market upside. Indeed, the Consumer Price Index dropped to 5.0% year-on-year in March beating expectations, while the Producer Price index slowed down to 2.6% y-o-y, far less than Wall Street expectations. This might sound like great news. Goldman Sachs even promised that the S&P 500 index would climb up by 2% as soon as the 5.0% number would be announced but this never happened. Moreover, investors continue to place a 70% bet on the Federal Reserve’s (Fed) interest rate hike by 0.25 percentage points in May, the same probability as before inflation data was released. The yields on Treasuries edged higher across the entire yield curve. Thus, large investors reacted moderately on the slowing down of inflation. Declining Producer prices may indicate that production is falling dramatically. Core inflation, that excludes volatile energy and food prices, edged up to 5.6% y-o-y from 5.5% in February.
This is a bad sign, as it demonstrates the Fed’s ineffective efforts in taming core reasons of inflation. The only reason for the slowing down of inflation in this regard is declining energy prices. In this case the Fed needs to continue interest rate hikes beyond May, but the real economy and the banking sector could hardly take any more hikes, a fact that was highlighted in the recent Federal Open Market Committee (FOMC) minutes released earlier this week.
So, it would be quite worthy to keep a keen eye on the Q1 2023 banking sector earning reports that will begin to be released today. These reports are not likely to be promising despite some accounting tricks banks may include to. So, investors will seek information between the lines and pay special attention to the forward guidance by management.
Technically, the S&P 500 index has an upside formation with targets at 4150-4250 points that have already been met but this may change soon. The index is now in a reversal zone and is likely to continue moving inside it by the end of next week. If the index survives above 4000 points, more ambitious upside targets at 4500-4600 points may emerge. In an alternative scenario the index may tumble and even spiral down to a deep correction.
Oil market traders have all eyes on the resistance of $86 per barrel of Brent crude. If this resistance level is crossed that will be a nightmare for the Fed as it will open the way for crude prices to rise to $94-96 per barrel. If this is the case, the downside trend will be eliminated. If the resistance survives, the recession scenario will become the leading factor dragging down prices to $40-60 per barrel of the Brent crude benchmark.
Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce by the middle of 2023. Prices may perform another attempt to reach $2080-2100 per ounce. In case of a bounce prices are likely to return to $1890-1900, otherwise they will go up. However, prices are likely to tumble before they can resume climbing towards extreme targets at $2400-2500 per ounce.
The U.S. Dollar is expected to be supported by the emerging upside signals in April. 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 are intact. The decline of the EURUSD to 1.05000-1.05500 was used to close half of the trade. The other half should be continued until the targets of 1.03000-1.03500 are met.
Besides, short positions for AUDUSD from 0.66900-0.67400 with the target of 3500 points and the same stop-loss order could be considered interesting. Short positions for GBPUSD from 1.23300-1.23800 with a target of 5000 points and the same 5000 points for a stop-loss order could be considered. Rising risks and market volatility could prompt trade volumes to be reduced.