The S&P 500 broad market index failed to move into positive territory last week while accumulating an overall weekly decline of 0.7%, which took it close to 3970 points. Investors are still hoping the Federal Reserve (Fed) may ease it monetary tightening stance at its next meeting on February 1.
The way in which the index is acting is not surprising as investors’ nerves are extremely taut ahead of the Fed’s meeting and they are reacting according to anyway the rumour wind blows. The index was seen to be slightly recovering at the beginning of the week by 0.2%, close to 3970 points. However, any negative news may easily push the index back down.
This week investors will be monitoring European Central Bank’s President Christine Lagarde’s testimonies on Monday, Tuesday, and Friday. It seems that she will continue with her hawkish rhetoric despite the changing market situation. It would be better at this point for her to ease pressure on the market and tone down the anti-inflation rhetoric to avoid a sharp U-Turn in the monetary policy in the future.
The first estimate for U.S. Q4 2022 Gross Domestic Product (GDP), that will be published this week, is also of great significance. Forecasts are quite optimistic as Wall Street expects GDP to slow down to 2.6% from 3.2% in the third quarter. Market reaction, however, could move in either direction. So, it would be better to wait for the data to be published on Thursday to assess the debt market’s reaction in the United States.
The third important issue that could emerge this week is the reaction of the U.S. Congress to the letter of the finance ministry, which mainly focuses on the debt ceiling of the U.S. Any response from Democrats or Republicans about the failure of a compromise to set a new debt ceiling will immediately lead to a sell-off in the stock market, and a rise of the Dollar.
Technically, the S&P 500 index is within the upside formation with the primary target at 4100-4200 points. This being said it has now entered the reversal opportunity window that would be open until the Fed’s meeting next week. The index is close to the resistance at 3950-3970 points which may create a battlefield. If the resistance is broken to the upside, we may expect it to move further up towards the designated target. Otherwise, the index will fell to 3870-3890 points, and may continue down to the secondary target at 3820-3840 points with a change of the formation to the downside.
Brent crude prices continue to attack the resistance at $87-89 per barrel. The weakening U.S. economy and the Lunar New Year in China may harm these efforts and cause prices to roll back to the support level at $77-79 per barrel. In case this base scenario does succeed, prices may continue down to $68-70 per barrel.
Gold prices are moving inside the mid-term upside formation, with targets at $2000-2100 per troy ounce by the middle of 2023. Prices have largely exceeded the upper margin of $1880-1900 per ounce, hovering around $1930 per ounce. Prices are expected to face more geopolitical tensions and be effected by the battle over the new U.S. debt ceiling level, making the outlook for future price movements quite uncertain. Odd price growth over the last week may suggest a further price rally to $1970-1990 per ounce without any stopovers, but also signal a possible swift change of a trend to the downside during elevated volatility to rewrite last year’s lows.
The money market is ready for the strengthening of the U.S. Dollar. Considering the potential of high volatility in the market, strengthening of the Greenback may be very strong, especially if it will be accompanied by the tumbling stock market. It is better to place orders that are attached to longer perspectives. Short trades for EURUSD opened at 1.06700-1.07200, with a downside target at 5000 points below the opening level and the same 5000 points for a stop-loss order, should be considered very attractive this January.