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  • Weekly Focus: De-escalation in the Middle East, Tesla, Powell and U.S. Retail Sales

Weekly Focus: De-escalation in the Middle East, Tesla, Powell and U.S. Retail Sales

Geopolitical tensions have significantly eased this weekend after Iran has declined its direct involvement in the Palestinian-Israeli conflict unless attacks would be launched on its own territory. Israel has postponed its expected ground invasion in the Gaza strip and restored water supplies to Southern Gaza.

The U.S. President Joe Biden warned Iran and its proxies against escalating the conflict into a broader regional war. He also warned Israel against occupying the territory of Gaza strip. It would a “big mistake” for Israel, he said. Although he supported Israel in its efforts to eliminate Hamas “entirely”. China urged Israel to end its collective punishment of Palestinians in the Gaza Strip. “Israel’s actions have gone beyond self-defense and it should heed the call of the international community and the Secretary-General of the United Nations to stop its collective punishment of the people in Gaza,” China Foreign Minister Wang Yi said.

This de-escalation signals have calmed investors as they are restoring more balanced outlook in the market. Safe haven assets are losing their gains with gold prices going down, and the U.S. Dollar is weakening together with the lowering yields on U.S. Treasuries. Nevertheless, investors are not ready to discount the Middle East conflict risks yet. Brent crude prices jumped by 5.2% to $91.60 per barrel last Friday restoring the idea of oil prices above $100 per barrel. This is a very dangerous scenario for the United States, and a catastrophic scenario for Joe Biden presidency. Thus, Biden could be interested to resolve the Middle East conflict as soon as possible.

Meanwhile, investors are getting ready for quite a busy week in terms of business agenda. The corporate reporting season is heating up. A good start by JPMorgan Chase could be supported Goldman Sachs, Morgan Stanley, Bank of America. Two big techs, Tesla and Netflix, are going to report this week too. Investors are seen major risks for these two, as Tesla may lose its marginality amid its price cutting policy to support sales. Netflix has a long lasting accounts sharing problem that may hamper its revenue.

On the macroeconomic front, China’s economic expansion and Federal Reserve (Fed) monetary policy signals would be key issues this week. China will report on its GDP, industrial production and labour market on Wednesday. Consensus suggest a slowdown of country’s economic development. U.S. retail sales are expected to move down to 0.3% MoM compared to 0.6% MoM in September. Several Fed members, including its Chair Jerome Powell, will be speaking on Thursday. Investors would expect Powell to share ideas about slowing down inflation and high enough borrowing costs that would not require the Fed to interfere with another interest rates hike. Money market and stock market indicators like S&P 500 broad market index should be monitored in order to assess investors’ reaction. The support at 4260-4280 points will be crucial for a further direction of the S&P 500 index. If it will dive below this mark, a path to 3700-3800 points by the middle of November will be opened.

Technically, the S&P 500 index downside formation with a primary target at 4100-4150 points and extreme targets at 3700-3800 points has not changed. The nearest support is at 4260-4280 points. A strong resistance is located at 4340-4370 points. Short trade was opened from 4360 points last week. 

Brent crude prices returned to $91.60 per barrel last week, still lower than the resistance at $92.00-94.00 per barrel. So, we may expect a retest of the support at $83.00-85.00 per barrel. If they would climb above $94.00 level we may consider the upside scenario of oil prices above $100.00+ per barrel. 

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. Prices have dived to $1800-1820 per ounce target area. They have recovered to $1870-1890 per ounce on geopolitical risks. Moreover, they managed to expand to $1910-1930 zone. If they fail to hold above $1910 level, then a retest of this level from the downside would signal nice sell opportunities. If prices will move above $1930 per ounce a good buy opportunities with a target at $2000 per ounce will emerge.

The Greenback has recovered its losses amid geopolitical risks. So, all trades were closed. The long trade with a small amount for GBPUSD from 1.23300-1.23500 was closed without any gains. The long trade in the AUDUSD from 0.63800-0.64000 was closed with a profit of 400 pips. The long trade for the EURUSD from 1.05200-1.05400 was closed at 1.06200 with a 900 pips of profit. No further trades could be recommended yet.