The S&P 500 Is in the Catbird Seat

Markets started this week with an optimism that suddenly started last Friday after S&P 500 broad market index jumped off the correction to a new record highs.

There is no particular understanding of the recent rally, as some investors consider it has started after some Federal Reserve representatives claims that the monetary policymaker would me more tolerant to any QE tapering amid spread of the new more contagious COVID-19 “Delta” strain. Some were suggesting that Chinese unexpected interest rate downgrade has granted commercial banks extra $130 billion, and this liquidity supported stock markets.

Nevertheless, the rally continues as S&P 500 peaked new all-time highs above 4380 points. And this record came just ahead of many important events this week that may amplify this rally.

Investors are waiting for June inflation data in the United States that would be released today. The corporate earnings season for second quarter has started with JPMorgan and Goldman Sachs to report this week. On top of it Fed’s Chair Jerome Powell will testify in the Congress.

We should expect strong earnings reports by banks, including their revenues from investment divisions. Mr. Powell is likely to continue dovish rhetoric while inflation figures may bring another unpleasant surprise rising above 4.9% in June. However, we could hardly apply the effect of this grim cocktail on the markets. So, sit and wait tactics on Tuesday might be a better option amid this turbulence.

Besides Jerome Powell would make another testimony in the Congress on Wednesday. Inflation in the United Kingdom and PMI index in the U.S. would be released on Wednesday too. Investors would closely monitor Chinese GDP, industrial production and retail sales figures. Chinese economy is expected to slow down and that could be a bad signal for commodities markets.

So, the news background is intense this week so it might be better to follow technical picture. Technically, for S&P 500 index we may suggest the following. It would be very risky to open sell positions as the index is above 4280 points and should reach the resistance at 4550 points. If the index would fall below 4280 points than a downward direction would become a prime scenario with targets at 4190 and 4120 points.

For Brent crude critical support is located at $74.50 per barrel. Once broken through prices may fall to $70 per barrel. But if prices remain above the critical support they would likely to rise to $75.80 and $76.90 per barrel. The latter level would be a good opportunity to open sell positions with targets at $75.80 and $74.50 per barrel.

Gold is not a particular interest as currency and stock markets are not distinguished their direction. Gold prices would likely to remain close to $1800 per troy ounce.

Currency market situation has changed. The EURUSD is still trading below 1.19300 making a decline to 1.15300 a basic scenario. On the other hand, if the pair would go up above 1.19300 the rise to 1.20700 or even to 1.21600 is possible. Sell positions on these levels would be interesting to open with targets at 1.19300 and 1.20700.

GBPUSD has confirmed strong support level at 1.37500, but this time this level might be broken. If this would be the case the pair may slide to 1.34400. In the alternative upside scenario with a rise to 1.39300 sell positions with the target at 1.38450 and 1.37500 would be interesting to open.

The USDJPY has significant chances to plunge to 106.50 once 109.65 level would be passed through. In the alternative upside scenario with the rise to 111.60 sell positions with targets at 110.60 and 109.65 would be interesting to consider.