Weekly Focus: Powell and U.S. Inflation

The September of 2023 joined the long row of September months that has brought a correction to the stock markets. The S&P 500 broad market index already lost 4.2% since the beginning of September, and may continue to dive unless the Federal Reserve’s (Fed) Chief Jerome Powell or August inflation data would provide some support to the markets.

The S&P 500 index rests on the strong support at 4290-4310 points. A breakthrough of this level this week is unlikely. So, Powell and Core PCE Index need to deliver a minor help for the index to remain above this threshold. Fed’s Chairman may point to a further uncertainty, while Core PCE Index should slow down to 3.9% or lower from the 4.2% in the previous month. This should be enough for the S&P 500 index to recover towards 4390-4400 points, with debt yields in the United States to go down too. This may give the Fed control over stock market correction.

Crude prices remain at high levels despite Fed’s efforts to bring them down. Brent crude prices are insistently testing the resistance at $92.00-94.00 per barrel. A breakthrough of this level would open the way to the nightmare prices at $100.00-103.00 per barrel and above. U.S. hedge funds are front running the Fed with the maximum long positions on crude opened since February 2022.

U.S. President Joe Biden’s disapproval rating according to NBC News rose to 56%, the highest since he was elected to the office. He may score a lot more when crude prices will pass $100 per barrel, and will be translated into gasoline prices in the U.S. domestic market. This might not be this threatening as next presidential elections are scheduled for autumn 2024. But a possible government shutdown since October 1 in the United States will amplify these issues. Biden may not have enough power to solve budget issues in timely manner, which may result in a long shutdown that will eventually hit markets too.

Technically, the S&P 500 index downside formation with a primary target at 4100-4150 points and extreme targets at 3700-3800 points has not changed. The nearest support is at 4290-4310 points. Short trades could be considered at 4390-4440 points. 

Brent crude prices are at the upper margin of the resistance at $92.00-94.00 per barrel. The Fed has tried to stop oil prices to move towards $100 per barrel. But prices are still trying to move up. The $96.00 per barrel threshold would allow prices to move up to $100.00-103.00 per barrel. The downside scenario may be activated it prices will return below $92.00 per barrel. Then they would dive to $82.00-84.00. If prices would fell below $74 per barrel a recession scenario with targets at $64-66 per barrel of Brent crude will be the option. 

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. Prices are gravitating to the support at $1910-1930 per ounce. If prices will fall below it, it would be better to be prepared to open short positions.

The Greenback is forming a reversal pattern. A long trade with a small amount for GBPUSD from 1.23300-1.23500 with a target at 1.26200-1.26400 was open. However, this trade may be closed if the pair will fail to hold above 1.22600-1.26400. The EURUSD long trade from 1.06200-1.06500 with a target at 1.0800-1.08200 was open too. It is also possible that this trade will be closed if the pair will dive below 1.06000. The long trade in the AUDUSD from 0.63800-0.64000 with a target at 0.66500 and the stop-loss at 0.63200 is still open.