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Weekly Focus: Fed Officials Hawkish Comments, U.S. GDP and PCE

The S&P 500 broad market barometer is gaining 0.3% to 4735 points. It is close to last week high at 4741 points, but fell short below weekly resistance at 4730-4750 points. This point to a possibility of a small correction towards the support at 4650-4670 points before the Christmas rally will hit new all-time highs.

This correction is strongly advocated by the Federal Reserve’s (Fed) officials. New York Federal Reserve President John Williams surprised investors by saying that the Fed isn’t talking about rates cuts at the moment. “I just think it’s just premature to be even thinking about that,” Williams said. Atlanta Fed Chief Rafael Bostic echoed him by saying that he sees only two rates cuts “sometime in the third quarter of 2024. Investors bet that the central bank would cut is rates more than three times next year with the first cut probably in March. Chicago Fed’s President Austan Goolsbee followed these two by saying that the Fed hasn’t won its fight with inflation yet. So, it would be premature to bet on the interest rates cut before inflation is under control. “Until we’re convinced that we’re on the path to that [bringing inflation down to the target], it’s an overstatement to be counting the chickens,” said Goolsbee. All three are probable those hawkish member of the Fed that plotted one rater cut in 2024 and voted for leave the rates unchanged in December. So, how those three appeared almost straight in the row. It is hardly a coincidence. The hand of an experienced conductor is very well felt. Such statements are destined to bring send stocks into a small technical correction to lift it to new all-time highs afterwards. With this in mind, a consolidation below 4730-4750 points is very useful.

Meanwhile the market will take a pause to lift off at full strength when the important data will be released in the end of the week. It would be an intriguing development if the S&P 500 index surpasses the new weekly resistance at 4830-4850 points, reaching a new high above the all-time record at 4819 points before the end of 2023.

The U.S. Q3 GDP data is scheduled for release this Thursday, with expectations for it to remain at 5.2% YoY. Additionally, the Fed’s preferred PCE index for November will be published on Friday, with consensus suggesting 3.4% YoY for the Core PCE and 2.8% YoY for the headline PCE Index, down from 3.5% and 3.0%, respectively. Higher PCE numbers may cause concerns, especially considering the unexpected rise in monthly headline inflation in November, beating consensus. However, even with higher PCE numbers, the Christmas rally is not likely to be derailed, though it may be slightly delayed until next week.

A minor point of interest lies in the Bank of Japan's meeting on Tuesday. The Japanese central bank is not expected to loudly signal the end of its seven-year-long negative rates policy, and investors believe this announcement will come but not in December.

Technically, the S&P 500 index has passed all over the available upside zone closing at the resistance at 4730-4750 points. The rally to the next resistance at 4850 points will be available at the end of this week. So, we should not exclude a possible roll back. More likely, the index will exercise sideways movements.

Oil prices are seen recovering. Brent crude prices went up above the support at $74.00-76.00 per barrel. Further upside momentum is needed now to continue moving towards $84.00-86.00 per barrel. Otherwise, prices may drop below $74.00 per barrel to the support at $65 per barrel.

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 the nearest support is at $1990-2010 per ounce. Prices may continue to deteriorate pushed down by a technical weakness period that will last by mid-January potentially leading gold prices to $1800-1850 per ounce. The fall of prices below $2000 per ounce will put this scenario into reality.

The Greenback returned to its primary correction targets at 1.08500-1.09500 against the Euro. The overbought tension for the EURUSD is removed. So, the EURUSD is ready to rise towards 1.11500-1.12500.