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Weekly Focus: the Fed, the ECB, Big Techs, and Many Macro News

This week is the most tense period of this summer. It has started with business activity indicators’ publication. PMI’s in the Eurozone and in the United Kingdom are down substantially in July, both in manufacturing and services sectors. The PMIs in the U.S. are likely to confirm this trend.

Investors will be monitoring Big Tech earnings reports this week. Microsoft (MSFT) and Alphabet (GOOGL) will open the season with Meta (META) and Amazon (AMZN) to join it latter during the week. U.S. Big tech companies are trading at the P/E forward ratio at 30, which is twice as much as other S&P 500 index listed firms. So, a correction for their high prices is needed.

The most important show of the week is the meetings of two major central banks. The Federal Reserve (Fed) is likely to raise its interest rates by 0.25 percentage points on Wednesday, which is priced in already. The same is related to the European Central Bank (ECB) that is expected to raise its rates by the same value as well. The most intriguing would be the rhetoric of the regulators regarding their future monetary actions. It would be logical if the Fed would keep its hawkish rhetoric intact to have an opportunity for another rates kike in September. The ECB, instead, could turn less hawkish referring to the incoming data in their monetary policy release.

The overall sentiment of the week is seen rather negative as the U.S. GDP is forecasted down to 1.7% QoQ from the first estimate of 2.0% QoQ for the Q2 2023. The Personal Consumption Expenditure Index (PCE), which is the Fed’s favorite inflation gauge, is expected to slow down to 3.1% YoY in June from 3.8% in May. These indicators combined together are flagging a slowdown in the global economy. Markets, however, are exercising a euphoria that may continue throughout the mid-August. Overall, all this huge wave of information the investors would face this week would be hard to digest. So, a new directional trend is unlikely to be established this week.

Technically, the S&P 500 index continues to have an upside formation with targets at 4250-4350 points, that have already been met. The benchmark is trading near the resistance at 4540-4560 points. If it will be passed the index will be heading towards the ultimate upside target at 4640-4660 points. The nearest support is located at 4440-4460 points. The downside signal has not formed yet, while there are more than enough incentives for this signal to emerge.

Brent crude prices passed the resistance at $76-78 per barrel after Organisation for Petroleum Exporting Countries (OPEC) and its allies demonstrated commitment to continue with production cuts. The former resistance became a support, after it was successfully tested. Prices are moving close to $81.80-82.00 per barrel, and may move further up towards $86-88 per barrel it first level would be broken through. In the alternative scenario prices may slip below $76 per barrel initiating a recession scenario with targets at $67-69 per barrel of Brent crude.

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. The chances for a correction towards $1820-1850 per ounce are still high.

The Greenback has recovered most of its losses, and is still looking solid compared to its major peers. Thus, even mid-term long positions for the U.S. Dollar are seen not to be appropriate. It would be better to wait for a decline of the EURUSD below 1.06000 to seek out sell opportunities for the Greenback.

Two positions were opened for July. First, is a short position for the EURUSD at 1.08900-1.09200 with the take profit and stop loss both set at 5000 points from the opening price. A long trade for the AUDUSD was opened from 0.66400-0.66600 with the same size of the stop loss and take profit orders as for the EURUSD. Two operations balance each other and should be kept to mitigate risks.

Another long trade was opened with GBPUSD at 1.28500-1.28700 targeting 1.30500. This trade should be closed before Fed meeting results would be announced on Wednesday.