U.S. inflation will probe markets

The beginning of the new week was not inspiring as stock indices are struggling even ahead of corporate reporting season in the United States. European stock indices edged down on Monday as well as U.S. stock indices. In addition, yields on U.S. Treasuries resumed climbing.

Maybe it is an incertitude of investors that would fade as Wells Fargo, Goldman Sachs and JP Morgan will publish their expected to be strong quarter reports. Maybe it is something more beyond as S&P 500 broad market index crossed the resistance level at 4120 points as inflation expectations grew in March to 2.5% from 1.7% in February.

So, investors are quite nervous today as March inflation readings will be published late evening in Tuesday. As we could remember the combination of rapidly rising yields in the debt market and high inflation could spark the rise of volatility and large market and extensive stock market corrections.

The S&P 500 broad market index is on the crossroads now as it has a 20-30% chance to break through the resistance at 4120 points with a possible target at incredible 4485 points. The other scenario considers correction to 3900-4000 points and is seen more likely. But even in the latter scenario traders have to perform maximum caution as corporate reporting season according to Refinitiv may be very strong with earnings of S&P 500 companies up by 25% compared to the first quarter of 2020.

Crude oil is waiting for the trigger to initiate correction that could crumble the support level at $62.3 per barrel of Brent crude. If this trigger appears in the market Brent crude prices may tumble to $58.70 per barrel this week with a far lower targets beyond.

The progress in U.S. – Iran deal negotiations could become such an appropriate trigger. If this deal would be resumed Iran could add as much as 1.5-1.7 barrels per day to the market.

Gold prices returned to the accustomed trading range at $1700-1750 per troy ounce. Rising U.S. debt yields pushed prices down from the upper margin to $1730 per ounce. However, current ten-year Treasuries yields at 1.68% are not enough to pressure gold prices below $1700 per ounce. So, a gold prices are likely to continue moving sideways.

Currencies are still mixed with no clear direction. The EURUSD is locked above weekly support level at 1.18500 and should be rising towards 1.19600 and 1.21000. But we do not suggest opening long positions. Instead we recommend to use resistance levels as a good short opportunities.

The GBPUSD has a long road to decline as 1.38200 resistance level is seen attractive to open sell positions with targets at 1.37200 and 1.36100, or even lower at 1.32100.

The USDJPY is likely to decline and the resistance level at 110.00 would serve as a good opportunity to open sell positions with targets at 109.00 and 107.60.