The Federal Reserve (Fed) and many other central banks, including the European Central Bank (ECB), will hold their last meetings of the year this month to decide on their monetary policies. These will be milestone decisions that will take into consideration all current circumstances that surround this issue.
However, markets have already priced in a likely slowdown of the monetary tightening. So, lower interest rate hikes will come as no surprise for investors. On the contrary, the announcement of the decisions by central banks would initiate the profit taking process that may result in the downturn of 30-50% of the current 4060 points level of the S&P 500 broad market index.
There are many reasons for a possible decline, including the U.S. debt market yields curve inversion and a highly reliable downside signal for the stock market, which could lead to a fall within the next two month. A rapid decline of the monetary supply in the United States for a second month in a row since September, may point to a lingering decline similar to the one felt during the 2008-2009 crisis.
Investors are currently focused on the possible lifting of pandemic restrictions in China and the Russian oil prices cap at $60 per barrel which has recently been introduced by The European Union. But the declining stock market in the U.S. could start weighing on investors’ mind as it may drop to 3900-3950 points by the end of this week. Long-term targets are deep down at 2000-2200 points.
The oil market is getting the most attention now as the Organisation of Petroleum Exporting Countries and its allies, known as OPEC+, has decided to continue with the current oil production cuts while it waits for Russia to respond to the price cap. But the price cap vehicle has many exclusions and a transition period so no shocks are expected to hit both Russian exports and the market itself. This being said, Brent crude prices are expected to continue down towards $60-70 per barrel.
Gold prices are hovering around $1800 per troy ounce amid geopolitical tensions and a weaker U.S. Dollar. If prices break through the level of $1820-1840 per ounce, it would signal the change of the trend to the upside in the long term. Otherwise, if prices fail to go beyond that level before the stock market reverses, gold prices may plummet below $1700 per ounce.
Short trades are preferable in December too. AUDUSD short trades were opened at 0.68000-0.68500, and EURUSD at 1.05000-1.05000. Both trades have wide 5000 points downside targets and stop loss should also be that wide.