Markets have not acquired any certainty during the last week as the S&P 500 broad market index is still hovering around the neutral support level of 4040-4060 points. This level neither indicates a possible upside nor a downside possibility. However, room for stocks to move to the upside is increasingly contracting at a rapid pace.
The correction of the U.S. Dollar is signaling that investors are not willing to follow negative perspectives that emerged after strong macroeconomic data in the United States was released. This data is likely to give the Federal Reserve (Fed) more room to practice extra interest rate hikes to cool down inflation.
Monetary issues are likely to dominate this week as the Fed is going to release the Federal Open Market Committee (FOMC) Minutes from the last meeting on February 1. The Personal Consumption Expenditures (PCE) price index, that reflects the change in prices for personal consumption in the United States, is also of importance this week as the Fed monitors this index in order to make interest rate decisions.
Both pieces of news are likely to resonate negatively with markets as FOMC Minutes are likely to provide a negative feeling without Fed’s Jerome Powell’s comments about cooling inflation, while the PCE index is likely to be higher-than-expected. Markets are ready. But will these pieces of news be enough to push the S&P 500 index down below 4040-4060 points?
The answer will likely be prompted by other stories that are outside macroeconomic data. These stories are linked to the war in Ukraine that started almost a year ago. New sanctions against Russia, new weapons provided to Ukraine, and a possible response to it from Russia, that is expected to be announced by Russia’s president Vladimir Putin on Tuesday, will define the market’s landscape this week. Investors hope for a de-escalation of the war as this would allow stocks to move above 4100 points if the movements of S&P 500 are considered. However, the most likely scenario may result in intensified combat actions before any peace talks can even start. In case of such an escalation scenario, American investors may push stocks down below the support of 4040-4060 to hold the line when FOMC Minutes and the PCE index data will be published.
Technically, the S&P 500 index continues within the upside formation with the primary target at 4100-4200 points, which has already been met. The index is now slightly above the support level of 4040-4060 points. But this level is likely to go off the radar, as the index may drop to 3990-4010 points, while the resistance would be set at 4110-4120 points.
Brent crude prices are consolidating in the middle of the wide trading range of $79-89 per barrel with rising uncertainty. It is better to wait before prices break out of the wide range of $79-89 per barrel in either direction. Recession logic suggests that prices are likely to go down.
Gold prices are moving inside the mid-term, upside formation with targets at $2000-2100 per troy ounce by the middle of 2023. If the escalation scenario around Ukraine becomes a reality, prices may rise to $1880-1900 per ounce. Even though odd price growth in January may point to a possible change of trend to the downside during elevated volatility to rewrite last year’s lows.
The money market ignored any upside signals for the American currency in January, making the Dollar oversold against other currencies. So, the Dollar is gaining momentum and may continue to strengthen further. Considering high volatility in the 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. However, the decline of the EURUSD to 1.05000-1.05500 could be used to close half of the trade, and reopen it when the pair rebounds to 1.06500-1.07000.