Weekly Focus: Nonfarm Payrolls and Middle East Escalation

Geopolitical situation made this weekend tense. Israel resume its ground offensive in Gaza strip. Unknown drones and missiles attacked U.S. Navy warship. Although nobody claimed a responsibility for this attack, Houthi rebels have reportedly attacked three commercial vessels in the area. U.S. Central Command believes that these attack were “fully enabled by Iran” making Iran a step closer to military entanglement.

Market reaction was mixed. Gold prices rocketed by 3.3% to $2141, a new all0time high. Bitcoin rallied by 5.0% to $41,790 per coin, the highest since April 2022. Oil prices dropped by another 1.7% to two-week lows at $78.00 per barrel of Brent crude. The United States is trying to push oil prices down with oil production on record highs at 13.2 million barrels per day. OPEC+ is pushing prices up by cutting production and orchestrating geopolitical tensions in the Middle East. Thus, the pressure on oil prices increased despite “positive” news that should support them this week. OPEC+ is unlikely to surrender that easy. So, any other news that should leads to a further escalation of the Israel-Hamas conflict should be expected.

The statement of the Federal Reserve’s (Fed) Chair Jerome Powell last Friday comes in a new light in this regard. Powell didn’t signal a possible end of the interest rate hike cycle labeling such speculations “premature”. This is against Fed’s Governor Christopher Waller words of possible interest rates cuts next spring and slowing down inflation. Powell may look much further, as a possible rise of oil prices may push inflation up again. The expansion of the Middle East conflict may not guarantee Fed’s efforts to bring inflation down would be successful. So, Powell could be scared by OPEC+ response.

The S&P 500 broad market index has passed a possible reversal period and is looking up towards 4800-4900 points. On the other hand, Powel has not provided enough reasons for a Christmas rally. So, investors have to find it somewhere else. The November U.S. labour market data this Friday could become a such a breaking point. But before the publication S&P 500 index is likely to orbit 4550 points. The publication may push the index towards 4630-4650 points and further up to 4800-4900 points after Fed’s meeting next week.

Technically, the S&P 500 index has passed a potential reversal period and entered a safer territory. The resistance moved to 4650 from the current 4550 points. The nearest support is at 4530-4560 points, while the strong support is at 4350-4370 points.

OPEC+ made its move. The production is cut by additional 1 million bpd. This may result in a 30% rise of crude prices in coming months. Meanwhile, prices are stagnating below the resistance at $83.00-85.00 per barrel of Brent crude. The nearest support is at $74.00-76.00 per barrel. This is where prices might go if they fail to recover above the resistance.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. Prices broke through  the resistance at $2100 per ounce to $2141 level and rolled backed to $1060 per ounce. The nearest support is at $2000-2020 per ounce. Prices are rolling back pushed down by a technical weakness period that will last by mid-January. So, opening long positions during this time would be unlikely.

The Greenback is hovering inside its primary correction targets at 1.08500-1.09500 against the Euro. Any further correction is largely associated with a Christmas stock rally. In this scenario, the EURUSD may rise towards 1.12000-1.13000. Alternatively, the Greenback could resume is strengthening towards the parity with the single currency.