Weekly Focus: U.S. Debt Ceiling Talks and Retail Sales

The most important event of the week will be on Tuesday when U.S. President Joe Biden from the Democrats’ side is scheduled to meet the House speaker, Kevin McCarthy, to talk about lifting the debt ceiling. The S&P 500 broad market index will enter a reversal zone that will last until the end of May.

Stock markets are prepared for a negative scenario in the talks, as Democrats must find a swift compromise that could be considered as an invitation for a furious political standoff this fall between GOP and Jacksonians.

Thus, traders have to monitor the S&P 500 index if it goes close to 4120-4140 points, which could become a key point for its future direction. If this support survives, the index may spike to close to 4260-4300 points for a short time. Otherwise, it is likely to drop to 4010-4030 points with a possible acceleration towards 3750-3850 points.

Joe Biden has confirmed that he is planning to leave for G7 summit in Hiroshima on May 17. This is likely to mean that he is confident that a compromise over the debt ceiling will be reached by that time. Otherwise, he is unlikely to participate in the summit, which would be a very embarrassing signal for other G7 leaders.

Apart from this event, this this week looks like a pretty regular one. U.S. retail sales data will be released on Tuesday; other macroeconomic data on Eurozone, China, and different large economies will be published throughout the week. The Federal Reserve (Fed) and European Central Bank (ECB) officials will testify this week. But all this would hardly interest investors before even a minor threat for U.S. technical default is eliminated.

Technically, the S&P 500 index has an upside formation with targets at 4500-4600 points. The index is resting between the resistance at 4200-4220 points and the support of 4080-4100. The resistance will move up to 4260-4300 points, and the support is expected to move to 4120-4140 points by the end of this week. A breakthrough of the support will signal a very likely U-turn to the downside.

The recession scenario chances are rising in the oil market as Brent crude prices continue to tumble towards $40-60 per barrel, which is the recession target. Prices tested the resistance at $77.00-79.00 per barrel and are moving down to the range of $67.00-69.00 level per barrel. Once they breakthrough this level they may accelerate further down. However, this will largely depend of the efforts of the Organisation of the Petroleum Exporting Countries and its allies, known as OPEC+, to stabilise prices.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. A fierce struggle for the important level of $1980-2000 per ounce resulted in the upside scenario with targets at $2070-2090. Prices were very close to this target, but rolled back to the $2000 support level. Another testing of the resistance at $2070 is likely since prices are above the crucial support of $1980-2000 per ounce.

The monetary market situation is complicated. 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 are intact. The decline of the EURUSD to 1.05000-1.05500 was used to close half of the trade. The other half should be closed at 1.05000-1.06000 considering recent developments. This week this target is likely to be reached.