This hectic week is ending on a positive note as the S&P 500 broad market index is adding 2.0% to 4203 points. This height is not the limit for the index as resistance levels moved up to 4250-4270 points. So, the index may add another 1.5% over the coming days.
Investors are likely to receive some good news about the debt ceiling talks over the weekend as U.S. President Joe Biden from the Democrats’ side and House speaker, Kevin McCarthy, are likely to deliver this to the public. However, it would be wise to prepare for any surprises.
The S&P 500 index has entered a favourable period for a U-Turn, and could be easily dragged down within a few days if some negative news regarding the debt ceiling issues emerge. Optimistic statements from both the Democratic and Republican sides are promising, but the budget issues between the parties could be much tougher than currently seen from the outside. In any case, the situation should become much clearer when Joe Biden returns to Washington to resume these talks. Any positive impulses from the talks may push the index upward to test the resistance at 4250-4270 points, while investors will focus on the Federal Reserve’s (Fed) actions, including the publication of the FOMC Minutes and inflation data next week.
Technically, the S&P 500 index has an upside formation with targets at 4500-4600 points. The index is moving towards the resistance at 4250-4270 points. If the resistance is overcome, traders may receive an open path to the primary upside target at 4500-4600 points. The nearest support is at 4120-4140 points. 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. But the situation has changed dramatically as the important support level of $1980-2000 per ounce was smashed this week and bullion prices dropped to $1965-1970. This could mean that the price spike to $1962 per ounce displayed the ultimate effort to test the resistance at $2070-2090 per ounce. So, a successful retest of the $1970-1980 level will open the way to a downside target at $1880-1890 per ounce. The successful retest event will become an excellent entry point to open short positions.
The Greenback went into an offensive mode amid optimism surrounding the debt ceiling talks. This enabled the U.S. Dollar to translate its upside potential into a rally against other currencies. In case of some disappointment over the debt ceiling talks, the Dollar may easily lose upside momentum. So, it seems there is no more time left to keep EURUSD short trades open much further. Short trades for EURUSD opened at 1.06700-1.07200 should be closed if the pair hits the 1.06000-1.06500 area. Otherwise, the pair should be closely monitored in the beginning of next week to avoid losses for any open short trades with this asset.