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  • Weekly Focus: Powell Cheers Intentions to Tackle Inflation

Weekly Focus: Powell Cheers Intentions to Tackle Inflation

The nomination of the new Federal Reserve (Fed) Chairman came as no surprise. Jerome Powell won the race for Chair. U.S. President Joe Biden announced his decision on Monday night. The second nominee, Lael Brainard, was offered the job of Powell’s Deputy.

The Senate will have no objections against approving Powell, who is a Republican and who would certainly be supported by his fellow party members. So, the approval of Mr. Powell for a new term could be considered as done.

The market’s negative reaction to Powell’s nomination is expected. So, it would be better to make his reappointment either on Tuesday night or on Wednesday to leave the market little time to react negatively before the Thanksgiving Day on Thursday. Now we see that after reaching all-time high at 4743 points, the S&P broad market index quickly rolled back towards the support at 4660 points. Moreover, the market has two more days to continue the decline.

The inconvenient for markets decision was followed by  Mr. Powell’s words, promising  that he will battle inflation. “We use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched,” Powell said. Treasuries reacted severely on his words as 10-year Treasuries’ yields rose to 1.63% from 1.56% along with sell-offs in the stock market and market consensus that interest rates would be hiked three times next year.

At this point, nothing seems to be on the positive side for the stock market as personal consumer spending data that will be released on Wednesday is likely to amplify inflation fears and provide more reasons for the Fed to counteract fast. So, seemingly investors should be prepared for the S&P 500 index to break through the landmark of 4660 points over the coming days and hope the decline will not be too much amid low trading activity ahead of the holidays. The next support level for the index is at 4540 points.

If the pressure continues the existing upward pattern in the market would be replaced by a downward formation that would undermine the very possibility of the Santa rally this year. Whether  this downturn will be used for opening short positions is a complicated question as the S&P 500 index may return to the upside next week. Anyway, investors are not recommended to keep their positions open over the long weekend.

The oil market has its own drama as OPEC+ shows its discontent after Brent crude prices fell below $80 per barrel. The OPEC+ is rumoured to stop lifting oil production quotas in the United States and other large oil impairing countries would continue to intervene in the market. And this is highly likely as the next target for Brent prices is at $72.00-73.00 per barrel. On the one hand, there could be  risks of falling Brent prices after a breakthrough of $78, but on the other hand, the alternative scenario is for prices to remain within the $78.00-82.00 range. So, the best tactics to trade crude is to open positions close to the margins of this range.

Gold prices have plunged below key resistance level at $1840 per troy ounce after Powell’s renomination and rising yield on the debt market. Gold prices easily went down to $1800 landmark and may plunge even further by the end of 2021 as no major support levels could stop it before $1750 per ounce. The current downside movement points to $1550-1650 as a final target.

The EURUSD continues to drop. The minimum of this drop could be located at 1.11000-1.11500. This week the drop to this level may continue amid monetary tightening expectations from the Fed and a continued loose monetary policy by the European Central bank, which is amplified by the COVID-19 new wave fears.

The GBPUSD has failed to reverse to the upside and is likely to continue to fall. For the next two weeks the range of 1.32500.1.33500 is the likely area to be achieved, while by the end of 2021 the Pound may drop to 1.29500-1.30500.