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Weekly Focus: Powell Testimony, ECB Meeting and Nonfarm Payrolls

The S&P 500 broad market index futures are trading neutrally at 5132 points at the beginning of the week, having established a new all-time high at 5140 points last Friday.

Several signs are pointing towards a cooling of the American economy. The ISM Manufacturing Purchasing Managers' Index (PMI) in the United States dropped to 47.8 points from 49.1 points, contrasting with the Markit Manufacturing PMI that rose to 52.2 points from 50.7 points. Additional data revealed a decline in construction spending in January. The Michigan Consumer Sentiment Index for February dropped to 76.9 points, missing expectations at 79.6 points. The Atlanta Federal Reserve (Fed) GDPNow projection for Q1 2024 plummeted to 2.1% from the expected 3.0%.

U.S. 10-year Treasuries yields declined to 4.17% from 4.29%, and bets on interest rate cuts by the Fed in March, May, and June saw a slight increase. The combination of these factors, along with artificial intelligence (AI) activity, propelled stocks above all-time highs on Friday. From a technical perspective, the S&P 500 index breached the resistance at 5090-5110 points, opening a path to 5190 points unless events of the week alter this trajectory.

Fed Chair Jerome Powell is set to testify to Congress on Wednesday and Thursday, and despite recent negative economic data, investors anticipate continued hawkish rhetoric. However, the Democratic wing of Congress may use these economic challenges to advocate for rate cuts, potentially impacting stock perspectives.

ADP's estimate of Nonfarm Payrolls for February is anticipated, with expectations at 145,000, while Wall Street analysts expect the figure to be 190,000. The European Central Bank (ECB) will announce its monetary decisions on Thursday, with interest rates expected to remain unchanged. ECB President Christine Lagarde's statements on potential interest rate cuts will be closely watched.

In China, the National People’s Congress and the Chinese People’s Political Consultative Conference are taking place, offering insights into China’s economic performance in 2024 and potential stimulus measures.

The S&P 500 has exceeded the final upside target zone at 4850-4950 points and missed potential correction opportunities. Betting on a rally before a correction could be risky, with reversal patterns indicating a standard correction of 5-7% within the next five weeks. The starting point of this correction is yet to be defined, but potential downside opportunities may emerge by the end of March. The nearest resistance is at 5190 points, while support is at 5090-5110 points.

Oil prices have surpassed the resistance at $81.00-83.00 per barrel for Brent crude after OPEC+ has extend 2.2 million bpd production cuts into the Q2 2024. Russia has also announced voluntary production cuts of 471,000 bpd on top of it. Oil prices continue up to the next target at $87.00-92.00 per barrel. A ceasefire in Gaza strip could potentially harm this rise, but it seems that peace talks seems to stuck.

Gold prices, having reached mid-term upside targets at $2000-2100 per troy ounce, are currently retesting the resistance at $2010-2030 per ounce from the downside. Prices jumped to $2085 last Friday. The nearest resistance is at $2100 per ounce. A downside scenario suggests that prices should dive below $2010 per ounce. In this case, prices could slip to $1920 and further down.

The currency market is moving flat, with expectations of another wave of the upcoming downside correction for the Dollar on hold. Powell speech, Nonfarm Payrolls data and the ECB meeting this week could bring more activity to the market. It remains risky to bet on both the rising and declining EURUSD, with a return to the 1.11500-1.12500 area likely, but a drop to 1.05000 should not be excluded.