Investors have been preparing this week for the Federal Reserve (Fed) and European Central Bank (ECB) monetary policy meetings that are scheduled for the last week of July. Many are convinced the upcoming expected interest rates hikes by two major regulators would be the last during this this cycle. Such expectations makes these meetings of paramount importance.
There were no major changes in existing trends this week. Weak China’s economic recovery data was contributed by weak retail sales in the United States that rose 0.2% in June missing consensus of 0.5%. Tesla and Netflix have delivered mixed Q2 2023 earnings reports that were considered by investors as a sell signal for both stocks. The global economy is seen slowing down. A drop in inflation in the Eurozone and in the United Kingdom could be considered as another recession signal in this regard. Conference Boar leading indicators are flagging a recession in the United states in Q3 2023 through Q1 2024.
Stronger labour market with lower Initial Jobless Claims that dropped to 228,000 from 237,000 a week before is no positive signal now. In the contrary, investors are increasing bets for another interest rates hike by the Fed beyond July. The rally in the U.S. stock market would hardly survive this. August statistically is a strong month for stocks, while September, October are much weaker in this regard. Would the S&P 500 broad market index rally further in August is uncertain as the ceiling for the current rally is likely located at 4650 points. So, a correction may easily start somewhere in late August. This will largely depend on the overall result of the Q2 2023 high-tech corporate reporting in the U.S. It is also worth remembering that the FactSet, which is tracking the corporate performance and providing market analysis, expect that S&P 500 listed companies, will lose 7.2% YoY of their profit, the largest contraction since Q2 2020.
Technically, the S&P 500 index continues to have an upside formation with targets at 4250-4350 points, that have already been met. The benchmark is trading near the resistance at 4540-4560 points. If it will be passed the index will be heading towards the ultimate upside target at 4640-4660 points. The nearest support is located at 4440-4460 points. The downside signal has not formed yet, while there are more than enough incentives for this signal to emerge.
Brent crude prices passed the resistance at $76-78 per barrel after Organisation for Petroleum Exporting Countries (OPEC) and its allies demonstrated commitment to continue with production cuts. This week the former resistance became a support, after it was tested. Prices may continue to move up to $81.80-82.00 per barrel, and further up towards $86-88 per barrel it first level would be broken through. In the alternative scenario prices may slip below $76 per barrel initiating a recession scenario with targets at $67-69 per barrel of Brent 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 first half of this trade was closed at $1910 per ounce, while stop-loss of the second was heated at $1980 per ounce closing the trade. It would be better to monitor how the situation will evolve further.
The Greenback has recovered some of its losses, but is still looking solid compared to its major peers. Thus, even mid-term long positions for the U.S. Dollar are seen not to be appropriate. It would be better to wait for a decline of the EURUSD below 1.06000 to seek out sell opportunities for the Greenback.
Two positions were opened for July. First, is a short position for the EURUSD at 1.08900-1.09200 with the take profit and stop loss both set at 5000 points from the opening price. A long trade for the AUDUSD was opened from 0.66400-066600 with the same size of the stop loss and take profit orders as for the EURUSD. Two operations balance each other and should be kept to mitigate risks.
The overheated rally in the EURUSD opened a nice opportunity for the pair to go short towards 1.10700-1.11000. So, short operations from 1.12300-1.12500 with the target at 1.10900 and stop loss order at 1.13100 were opened and closed early at 1.11200.
The market offers another opportunity to open a risky long position for GBPUSD at 1.28500-1.28700 targeting 1.30500. If opened this trade should be closed before Fed meeting results would be announced next Wednesday.