Weekly Summary: Investors are Waiting for the Powell

Markets are very tense this week. The S&P 500 broad market index jumped by 2.5% to 4475 points this week, but rolled back to the 4380 mark, where it is hovering on Friday waiting for Jerome Powell, the Chair of the Federal Reserve (Fed), to deliver its address on monetary policy perspectives to the Jackson Hole symposium.

The U.S. debt market behavior is also tense as yield on U.S. 10-year Treasuries dived to 4.17% in the first half of the week. This market lower risks and stabilization. However, yields resumed climbing to hit 2007 highs on August 25. There are no particular reasons for this. PMI readings this week expectedly signaled slowdown of the global economy. Fed officials were mixed in their statements saying that further steps are needed to tame inflation, while others suggest it is an appropriate moment to end hawkish monetary cycle. 

Anyway, there are no reasons of further disappointment. But investors are seen stressed out before Powell’s speech, as their prefer closing some of their positions right after a very strong NVidia Q2 2023 report. This sound logical as there is no consensus in the market about future steps of the Fed. High level of uncertainty may nudge Mr. Powell to deliver rather neutral speech to avoid additional stress in the market. However, the Fed has to send some dovish signals to stop debt yields from rising any further. This may lead to a full-scale debt crisis as yields are extremely high now. Ion the other hand, too much dovish tunes may lead to higher-for-longer inflation. So, Mr. Powell needs both targets to be achieved, to stop yield from rising and to highlight Fed’s commitment to bring inflation down to the 2.0% target. 

So, it could be rather a dovish message from the Fed if Powell will speak about the importance of new incoming inflation and labour market data. This will shift investors’ focus towards PCE data and Non-Farm Payrolls figures that would be released in the end of next week.

Technically, the S&P 500 index continues to have a downside formation with the primary target at 4200-4300 points and extreme secondary targets at 3800-3900 points. The downside signal has been finally shaped with a short trade initiated at 4520 points. It would be better to close a part of the trade once the primary target would be reached.

Brent crude prices have moved lower with a new resistance at $83.00-85.00 per barrel. Any upside jump above this level may lead prices to rise above $90.00 per barrel. If prices would dive below $83.00 a primary downside scenario with a support at $74.00-76.00 per barrel will be initiated. If prices would fell below $74 per barrel a recession scenario with targets at $64-66 per barrel of Brent crude will be the option. 

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 nearest support is set at $1890-1910 per ounce. It is unlikely that prices will dive below it next week. In the emergency case of a breakthrough, short positions could be opened after prices retest $1890 per ounce level.

The Greenback added 1.0% this week as if Powell has already deliver a hawkish speech. Such move are likely to be considered false, and the U.S. Dollar may easily roll back. A risky long trade with a small amount for GBPUSD from 1.27200-1.27400 with a target at 1.29400-1.29600, and a new lower stop-loss at 1.25300 is intact. A long trade in the AUDUSD from 0.63800-0.64000 with a target at 0.66500 and the stop-loss at 0.63200 is also open.

If these trades will be successful, a further weakening of the Greenback could be expected. It would be better to wait for a decline of the EURUSD below 1.05000 to seek out sell opportunities for the Greenback in this regard.