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  • Weekly Summary: Central Banks Fire Big Guns to Execute Markets

Weekly Summary: Central Banks Fire Big Guns to Execute Markets

Central bankers are trying to extinguish inflationary fires by hiking interest rates and, in the process, also shooting down stock markets to put them out of their misery. Investors are close to panic as they are trying to escape the trap of collapsing stocks. All this chaos has certainly affected the FX market.

However, for now the situation only looks like a chaotic one despite increased volatility, and investors are still betting on central bankers succeeding on preventing another cyclical crisis. These hopes are reflected in currency rates, commodity prices, stock indexes, and bond dynamics. All of these have exercised high volatility but within technical patterns so a chaotic situation seems to have been avoided so far. True panic will likely crash everything on its path and all technical patterns and modeling will become useless. Short-term patterns are idle now, while mid-term technical modeling seem to be reliable. This could mean that markets have one or two months before real chaos engulfs them.

This idea could very well coincide with the timing of the next Federal Reserve (Fed) meeting on July 26-27, followed by Q2 2022 U.S. GDP first estimate publication on July 28. If GDP figures slip into negative territory again this would mean an official recession started after Q1 2022, when GDP recorded a decline of 1.5%.

Crude prices are performing quite the other way as they are signaling to set positions to lift off to the extreme $160-180 per barrel of Brent crude by the end of June. It would be a nightmare to imagine what the response of the Fed and other monetary policymakers would be to such a surge.

The S&P 500 broad market index remains within the aggressive downside pattern while already meeting the primary target at 3650-3750 points. Next week there may be an opportunity for a rebound. If this rebound fails to beat the resistance at 3850 points, the index would likely drop towards the secondary downside targets at 3450-3550 points.

Brent crude prices bounced off the resistance at $124 per barrel and are now hovering around $121 per barrel, while getting ready to test the resistance again. The heart of this story lies in the visit of U.S. President Joe Biden to the de facto ruler of Saudi Arabia Crown Prince Mohammed bin Salman to convince the latter to pump more oil. The response of the prince is hard to guess, but Brent crude prices certainly have a chance to rise towards $135-137 per barrel after the meeting. Once this level is reached the window for Brent crude rally opportunities towards $160-180 per barrel will open.

Gold prices continue to slide and may continue to do so until the end of July. This week prices dropped to $1805 per troy ounce and rebounded quickly to $1840-1850 per ounce. This rebound could be attributed to falling yields of the U.S. 10-year Treasuries in the recent days. The nearest support for gold prices is at $1730-1750 per ounce, and short positions opened at $1860-1880 are seen to be justified.

The FX market is experiencing high volatility this week as Swiss National Bank (SNB) has suddenly lifted its interest rates from -0.75% to -0.25%. EURUSD has changed its pattern to the upside after this unexpected move by SNB. The upside target for the Euro is at 1.07000-1.08000 and it seems to be an interesting buy opportunity to consider. But these operations from 1.04500-1.05000 with targets at 1.07000 are seen rather risky and should be performed with extra caution.

GBPUSD has also changed it pattern to the upside, meeting targets at 1.23500-1.24500. Such a rapid rise may wake up doubts about the stability of this rally. So, it is better to monitor both pairs for more reliable signals.