Activity in the markets has slowed down amid the long weekend in the United States, and investors see no reasons to push prices in either direction. So, they moved close to the levels where they finished last Friday.
Triple Witching passed smoothly without any major disturbances. The S&P 500 broad market index edged lower to 4407 points and the currency market is mostly unchanged. Oil prices are moving independently up by 1.0% to $76.40 per barrel of the Brent crude benchmark.
Investors are expecting the Federal Reserve (Fed) Chairman, Jerome Powell, to testify in congress on Wednesday and Thursday, while digesting the decision of the U.S. monetary watchdog to not raise interest rates last week. One part of the investing community believes that this is the end of the interest rate hike cycle that would be followed by a rise of stocks by 7-8% in the next three months, while others believe the pause in interest rate hikes will be temporary and will result in the decline of the S&P 500 index by 1.5% within the next month.
The difference between these two scenarios is very pivotal. In the first scenario, investors may have a strong reason to buy, while in the second scenario it is a strong reason for profit-taking. So, Mr. Powel may have the decisive word. If the Fed needs the economy to slow down to lower inflation, it is the right time for action. If he continues with the hawkish rhetoric that is needed to lower inflation, expectations of a market correction are likely to start pushing the S&P 500 index down to 4250-4350 points. The formation of the index could change to the downside in this scenario. Dovish words from Mr. Powell will launch an extreme upside scenario with targets at 4550-4650 points. If this extreme target is reached, it will form an excellent downside signal for the index.
Technically, the S&P 500 index continues to have an upside formation with targets at 4250-4350 points that have already been met. The market has failed to move alongside an extreme upside scenario with targets at 4550-4650 points during Triple Witching last Friday. A correction pattern is starting to emerge, while room for the extreme scenario has almost disappeared.
Crude prices continue to consolidate below the resistance level at $76-78 per barrel of Brent crude, awaiting a good moment to drop towards $67-69 per barrel. Once this level is broken, recession scenario chances will become very high. Its targets are at $40-60 per barrel of Brent crude. Traders should not forget the Organisation of Petroleum Exporting Countries and its allies (OPEC+) could interfere to support crude prices. So, it may not be the best moment to trade crude.
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 $1890-1910 per ounce.
The Greenback has stopped retreating. So, the EURUSD is seen to move towards 1.08000-1.08500. The American currency is looking oversold, but a long trade is not the best solution at the moment. It would be better to wait for another upside move by the U.S. Dollar to seek out sell opportunities for the Greenback.