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  • Weekly Focus: ECB and BoC May Start Monetary Easing, while NFP May Guide the Fed

Weekly Focus: ECB and BoC May Start Monetary Easing, while NFP May Guide the Fed

The S&P 500 broad market index futures are up 0.2% to 5294 points this week, surpassing the resistance at 5260-5280 points, indicating a bullish market sentiment. If the index maintains above this level, it could potentially continue its upward trajectory towards the 5360-5380 milestone and possibly reach a new all-time high.

Last week, the index faced a precarious situation, dropping by 2.0% to 5191 points on Friday, nearing a downturn towards 4900-5000 points. However, the release of the April PCE Index data, which met expectations and showed a lower Core PCE on a monthly basis, helped the index recover.

U.S. 10-year Treasury yields decreased to 4.49% from 4.55% following the news. Bets on a Federal Reserve interest rate cut in September increased to 47.0%. The S&P 500 index managed to erase most of its weekly losses, closing at 5293 points. This recovery was bolstered by a $3.6 billion fund inflow into the SPDR S&P 500 ETF Trust (SPY) at the end of last week, marking a third consecutive week of positive results. Large investors are consolidating their upside positions. Extreme targets lie at 5650-5750 points, which seem contingent on the Fed cutting rates. Without clear signals from the Fed, further upward movement in the index remains fragile. However, potential monetary easing by the European Central Bank (ECB) and the Bank of Canada (BoC) could support global stock markets.

The Canadian regulator is anticipated to cut its interest rate to 4.75% from 5.00% on Wednesday, which would be the first rate cut since March 2020. Similarly, the ECB might reduce its rate to 4.25% from 4.50%, marking the first reduction since March 2016. These potential rate cuts could prompt other developed nations to follow suit, which would be positive for stocks globally. The Fed might join this trend in September or later this year.

Other significant events this week include the release of the May Nonfarm Payrolls data on Friday. Prior to this, manufacturing and services PMIs will be released in China, the Eurozone, the U.S., and the U.K. ADP Nonfarm Payrolls on Wednesday may provide early indicators for the official U.S. labor market report due on Friday. Wall Street analysts expect neutral indicators with a cooling labor market, which would be positive for stocks.

The Organization of Petroleum Exporting Countries and its allies (OPEC+) also supported stocks by announcing an extension of oil production cuts through September. Investors had expected these cuts to extend through the end of 2024. This decision reduces inflation risks but has led to a decline in oil prices.

From a technical perspective, the S&P 500 index outlook has improved. The index has met its primary targets at 5250-5350 points. Extreme targets lie at 5650-5750 points, though these levels seem unrealistic in the near term. A climb above 5370 points would signal this scenario starting to materialize. Immediate resistance is at 5350-5370 points, with support at 5260-5280 points.

Oil prices fell following the OPEC+ meeting, which did not provide strong enough support. The cartel plans to increase oil production in October, significantly boosting supply. Prices are now testing the support at $80.00-82.00 per barrel of Brent crude, with a significant downside risk if this support level is breached. The nearest resistance is at $89.00-91.00.

Gold prices, after reaching mid-term targets at $2000-2100 per troy ounce, are seeking extreme targets at $2400-2500. There is limited room for further increases, and a pullback could soon occur. For a downside scenario to materialize, the support at $2290-2310 must be breached. Immediate resistance is at $2390-2410.

The U.S. Dollar continues to struggle to break through the EUR/USD support at 1.08000-1.08200. Primary upside targets at 1.08950 have been met. If the pair slips below 1.08000, a drop to 1.05000 could occur in the mid-term. Interest rate cuts by the ECB and BoC could support the Greenback.