Weekly Focus: Inflation, Retail Sales, and the Hunt for UFOs

The information landscape overlooking financial markets has a strange air about it the Chinese balloon was shot down by the U.S. Air Force and the information attack on Indian Adani Group. Now the U.S. Department of Defense reported that U.S. Forces have downed three unidentified objects that were cruising over the territory of the United States. Chinse authorities have also reported a detection of unidentified flying object near the port city on the North in Shandong Province, as they were considering to shoot it down.

This may all seem like psychological pressure to draw attention away from something more important and cover up serious issues in the markets.

This week the major focus is on macroeconomic data in the U.S. as inflation data for January 2023 will be published. The consensus suggests that prices are going to slow down to 6.2% from 6.5% in December 2022. However, many market participants doubt  inflation is that far down. There are many reasons for both slowdown of inflation and its increase in January. So, if inflation is above consensus, it may bring the S&P 500 broad market index down by another 2-3% below current levels at 4093, and strengthen the U.S. Dollar by 1-1.5%. If inflation is in line with the forecast, stocks are likely to continue to move sideways. The most unrealistic scenario is that inflation has slowed down below the forecast to push the S&P 500 index to the new high at 4200 points.

Other data such as retail sales in the U.S. and the testimony of European Central Bank President Christine Lagarde’s will also be interesting, but only in the light of inflation data in the U.S.

Technically, the S&P 500 index continues within the upside formation with the primary target at 4100-4200 points. The nearest support went down to 4040-4060 points. So, the index may edge slightly lower before the release of January’s Consumer Price index. After the publication the index, the market may see a rebound to 4180-4200 points, or continue to drop to 3930-3960 points to form a downside formation with targets at 3750-3850 points.

Brent crude prices jumped to $87-89 per barrel after Russia’s energy minister, Alexander Novak, said the country is going to cut crude production by 500,000 barrels per day. It seems that the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) is not willing to compensate this cut. The silence of the cartel is making the situation in the market more uncertain. In light of this situation it is better to wait before prices break out of the wide range of $79-89 per barrel in either direction. Recession logic suggests that prices are likely to go down.

Gold prices are moving inside the mid-term, upside formation with targets at $2000-2100 per troy ounce by the middle of 2023. Prices have fallen below $1880-1900 per ounce, increasing chances of a further downfall to the support level at $1790-1810 per ounce. Odd price growth over the last weeks may point to a possible change of trend to the downside during elevated volatility to rewrite last year’s lows.

The money market is still ignoring any upside signals for the American currency. After the release of Non-Farm Payrolls data, the Dollar gained momentum and may continue to strengthen further. If inflation figures in the U.S. miss the consensus, the Greenback may strengthen by another 1-1.5%, which would mean EURUSD could down to 1.05000-1.05500. Considering the high volatility in the market, it is better to place orders that are attached to longer perspectives. Short trades for EURUSD opened at 1.06700-1.07200 with a downside target at 5000 points below the opening level and the same 5000 points for a stop-loss order should be considered very attractive. However, the decline of the EURUSD to 1.05000-1.05500 could be used to close half of the trade, and reopen it when the pair rebounds to 1.06500-1.07000.