S&P 500 broad market index futures rose by 0.3% to 6,414 points this
week, slightly retreating from 6,423, a new all-time high. Trading opened with
a price gap from 6,394 points, suggesting a pullback to this level may occur in
the coming days. This week is exceptionally packed with news, arguably the most
intense week of the summer. U.S. President Donald Trump added even further fuel
to the market by announcing a trade deal with the EU after meeting with
European Commission President Ursula von der Leyen, sending markets higher on
Monday. The U.S. and EU have agreed on mutual 15% tariffs. In return, Europe
has pledged to buy hundreds of billions of Euros worth of American energy
instead of Russian supplies. Trump now holds all the cards: agreements with China,
Japan, the EU, and the U.K. Trade disputes should remain in the background, at
least for now.
Attention is now shifting back to domestic U.S.
developments. ADP Nonfarm Payrolls data will be released on Wednesday, with a
modest gain of 82,000 expected. The same day brings the second estimate of U.S.
GDP for Q2 with a consensus of 2.4% QoQ. While labour and GDP figures are
important, market participants are mostly focused on the Federal Reserve (Fed) interest
rate decision on Wednesday night. The consensus suggests that rates will remain
unchanged at 4.50%, with market bets for this outcome standing at 97.4%.
However, several FOMC members have voiced support for rate cuts, which could be
politically motivated. These members may be positioning themselves to replace
current Fed Chair Jerome Powell and seeking favour with Donald Trump. A heated
debate within the Fed is therefore entirely possible, and Powell may have to
acknowledge it during his press conference.
After the close on Wednesday, Microsoft and
Meta Platforms will report quarterly earnings. Strong results are expected from
Microsoft and Meta on Wednesday, followed by Apple and Amazon on Thursday.
Concerns remain over the Personal Consumption Expenditures price index, which
is likely to rise in line with CPI. However, markets are already prepared, so a
nervous reaction is unlikely. Even a slight rise in U.S. unemployment in July
from 4.1% to 4.2% in Friday’s jobs report would likely be seen as a positive
cooling of the labour market. It would ease inflationary pressure and increase
the odds of a September rate cut. Bets for this scenario are standing at 62.7%.
The news landscape is so positive that even
large investors have revised their positioning at the last moment. The SPDR
S&P 500 ETF Trust reported net inflows of $1.44 billion last week after
significant outflows earlier. It appears everyone is preparing for a test of
the resistance at 6,450 points.
The technical outlook for the S&P 500 remains unchanged. Futures have
reached the extreme target range of 6,350–6,450 points. The benchmark is
currently holding above resistance at 6,350–6,370, increasing the likelihood of
a move toward the next resistance level at 6,450–6,470 points. A breakout here
will be extremely difficult. The probability of a correction in mid-August
continues to rise.
In the oil market, August opens the door for a
rebound. Prices remain below the $71.00–$73.00 per barrel level for Brent
crude, which is a bearish sign. Yet prices are not retreating, which indicates
underlying strength. The next upside target lies at $81.00–$83.00. If prices
fail to climb higher, a decline to support at $61.00–$63.00 could follow.
Gold prices have failed to break below support at $3,230–$3,250 per troy
ounce and have also been unable to overcome the resistance at $3,430–$3,450. A
correction has brought prices back to $3,330–$3,350, with the current level at
$3,337. The summer consolidation phase continues and may last at least until
mid-August. A breakout from the $3,250–$3,450 range is possible then. A deeper
decline would require a firm close below $3,230.
In
the currency market, the U.S. Dollar has gone on the offensive. Trade tensions
have eased. Pressure from the EU and Japan on the Greenback has weakened. The
EURUSD has already fallen to 1.16700. A retest of the 1.17000 area is possible,
followed by a move toward the next target of 1.15000–1.15500.