Tensions are mounting. Israel has begun its ground operation in Gaza strip. U.S. and Israeli policymakers are trying to convince international community of low risk of conflict expansion. This is the key to lower energy prices. But, in times of a redivision of the world such claims are seen as a deceptive maneuver before a bold strike.
Other nation are likely to understand this and may strike back. So, this week would be crucial in term of involvement of Arab neighboring countries like Iran in the conflict. Many media report that both parties have their troops ready for deployment. Investors would carefully listen to the market vibes to catch a war drums rhythm.
On the macroeconomic front, Bank of Japan (BoJ) will be the first to announce its monetary decisions. This is extraordinary, as BoJ usually holds it meeting in the end of the week. This might be a signal that this end of the week could be very busy to deliver monetary notes. A major question to the BoJ is how its policymakers would avoid a trap of too strong overplaying in monetary tightening. Too high interest rates may lead to a deflationary quagmire that would devalue BoJ efforts of the last few decades. On the other hand, low interest rates would send the Yen to 150.00-155.00 against the Dollar. The only good choice could be associated with raise the bonds yields curve targets and interventions to support the Yen.
The Fed will be the next to announce its monetary decisions. The watchdog is expected to leave its 5.25-5.50% interest rates unchanged. The rhetoric of the regulator becomes a key as Treasuries yield are surging, high GDP is maintained on persistent high inflation. Even Fed’s Chair Jerome Powell may have no understanding what to say in this situation. He may find one closer to the Fed’s meeting end.
Bank of England will also have its monetary decisions announced this week. Its interest rates are expected to be unchanged too. Apple will reports its Q3 2023 earnings that are not expected to be positive enough. The week will finish on a U.S. labour market report that is expected to show some cooling. All these event could be strongly overshadowed by a possible full-scale war the Middle east.
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 support will move lower to 4150-4170 points by the middle of the week. The index could go lower before then. A strong resistance is located at 4250-4270 points. Short trade was opened from 4360 points three weeks ago. Halt of the profit could be taken since the index hit the primary downside target.
Oil market has become the most important indicator of the situation in the Middle East. Brent crude prices are forming a narrowing triangle that indicates a rapidly nearing resolving of the current tensions by the end of this week. Brent prices are below to the lower margin of this triangle at $92.00 per barrel. But this doesn’t necessarily mean that prices are likely to drop to the support at $83.00-85.00 per barrel. The oil market need far more strong news to define a future direction of prices.
Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. The resistance at $1910-1930 was smashed. Prices are moving towards the $2000 per ounce. There was no sound retest of the $1930 level. Thus, any long trades that were opened are likely to be closed at $2000 per ounce level. This doesn’t mean that prices would not move to $2100 per ounce, but this move would be very risky to follow.
The Greenback is mostly unchanged this week. Loose escalation in the Middle East doesn’t allow it to strengthen. There are almost no good trades at the moment. A short trade with a small amount for GBPUSD from 1.21150 with targets at 1.20500 and 1.19700 was reopened at 1.21300.