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  • Weekly Summary: All Eyes on Inflation and Fed Meeting Next Week

Weekly Summary: All Eyes on Inflation and Fed Meeting Next Week

Investors seem to be putting everything on hold this week as they are waiting for further market drivers to emerge. These drivers are primarily associated with the publication of the set of inflation data and the long awaited decision of the Federal Reserve (Fed) on its interest rates.

Brent crude prices failed to breakthrough above $78.80 per barrel, and after a short pause dropped to $73.60. A slowdown of the global economy, which was officially confirmed in the Eurozone this week and removed some of the  inflation pressure from China, put additional pressure on crude prices despite Saudi Arabia’s decision to cut production by one million barrels.

The debt market in the United States has not provided any clues this week as Treasuries’ yields remained practically unchanged. Investors are waiting for the Fed to take a pause in its interest rate hike cycle in June with a 73-75% possibility according to CME FedWatch tool. This may signal to an elevated risk in the American financial system, as the Ministry of finance is going to conduct massive borrowings of $1 trillion by the end of this financial year that ends on September 30.

The S&P 500 benchmark index prefers to move sideways in this situation, hovering around 4290 points. Wall Street veterans suggest the recent rally that started in October 2022 is a bull’s trap, while optimistically tuned enthusiasts believe the rise of the index by 20% since then clearly indicates a bullish market with even better perspectives. Nonetheless, the index may indeed renew its 4326 points, seen during its August 2022 highs, for a short time.

Meanwhile, investors are preparing for next week, when the Fed and the European Central Bank (ECB) will announce their interest rate decisions before a traditionally sluggish summer time. This summer is expected to be less volatile compared to 2022 with its enormous geopolitical impact due to the invasion of Ukraine by Russia. However, next week is expected to be a volatile period, which may grant a sideways direction for the markets. It is very timely though as it will allow investors to prepare carefully for the bizarre economic situation that is expected for this autumn.

Technically, the S&P 500 index continues to have an upside formation with targets at 4230-4330 points, that have already been met. The upside potential is very limited, while there is plenty of room for the downside. The nearest downside targets are at 4140-4160 points.

The oil market is struggling to avoid prices plummeting towards $70 per barrel of Brent crude. The Saudi Arabian efforts will remove another one million barrels per day from the market to stabilise prices had minor effect. The recession scenario chances are still high in the oil market with downside targets at $40-60 per barrel, which is the recession target. Although prices jumped to $78.28 per barrel, they failed to breakthrough the resistance at $79 per barrel. This could be seen as the weakness of the market, but may also prompt members of the Organisation of Petroleum Exporting Countries and its allies (OPEC+) to make more aggressive moves to push crude prices up.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. But the situation has changed dramatically as the important support level of $1980-2000 per ounce was smashed. Short positions were opened after prices tested the $1970-1980 former support level with targets at $1880-1900 per ounce.

The Greenback has scaled back before the Fed meeting next week. A long trade for GBPUSD was postponed too considering elevated volatility next week. ECB and FED testaments on their future monetary actions may form a favourable environment for the trade to be opened.