Weekly Focus: A Good Moment for the Markets to Tumble

Markets successfully survived the weekend, and all banks remained intact. Even battered Deutsche Bank has been seen to survive the information hassle around it. This might be good as such a cloudless atmosphere along with calming statements from officials about the strong resilience of the banking sector, are seen to stabilise stick markets.

However, it may lead to a complacency of monetary regulators that would not take additional actions to mitigate any possible crisis outbursts. This may eventually lead to investors’ confusion and may result in the 2008-2009 crisis scenario. Thus, many central banks’ officials are scheduled to make testaments this week to convince investors about financial stability, including that of the banking sector, and to highlight the fact that the recent collapse of some banking institution was only an unfortunate event.

This is unlikely to make any effect if some additional stress is spotted in the banking sector. In this situation the calming statement of monetary officials will have the opposite effect, fueling panic and sell-offs of risky assets. And this scenario is likely to happen this week with the sell-off likely to be accelerated on Friday if Personal Spending data in the United States turns out to be disappointing. This would eventually lead to a U-turn in the Federal Reserve’s (Fed) tight monetary policy towards easing. Core Personal Consumption Expenditures (PCE) Index will also strongly contribute to the market sentiment. If the Index remains at the previous 5.4% year-on-year, or if it edges higher, sell-offs will be increased amid expectation of a following interest rate hikes.

Technically, the S&P 500 index continues to move within a downside formation with targets at 3650-3750 points. There are no hurdles to stop the index from falling to 3840-3860 points despite the index trying to get above the resistance of 3950-3970 points. These attempts are unlikely to be successful. So, the meeting point at the support level of 3840-3860 is the likely scenario. If the index fails to bounce to the upside a further drop to the primary target of 3650-3750 points and below will be likely.

Oil prices, which were recently tested, confirmed the resistance level of $77-79 per barrel of the Brent crude benchmark. Recession logic suggests that prices are heading towards $67-69 per barrel with the primary target at $40-60 per barrel. The Organisation of Petroleum Exporting Countries and its allies will meet at the beginning of April. So, there seems to be nothing to support prices, except perhaps for some unexpected tensions in the Middle East.

Gold prices are moving inside the mid-term, upside formation with targets at $2000-2100 per troy ounce by the middle of 2023. Prices broke through the resistance level of $1890-1900 per ounce amid a shocking quake in the U.S. banking system and the widening fears of a possible banking crisis in Europe. They have reached the target zone. However, prices are likely to tumble before they can resume climbing towards extreme targets at $2400-2500 per ounce. It is better to wait and see how the situation will evolve.

The U.S. Dollar has dropped substantially, but this seems to be rather temporary. The Dollar may renew its highs before going further towards the other direction. Considering high volatility in the market, it is better to place orders 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 attractive. The decline of the EURUSD to 1.05000-1.05500 could be used to close half of the trade. The other half should be continued until the targets of 1.03000-1.03500 are met.