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  • Weekly Summary: Debt Ceiling Deal is Nearing, while Risks Are Up

Weekly Summary: Debt Ceiling Deal is Nearing, while Risks Are Up

Debt ceiling negotiations continue to trouble investors. Although Republicans and Democrats have $70 billion in spending to discuss, it could be considered rather positive news compared to $4.5 trillion cuts demanded by the GOP side at the start of the talks. It may also mean that the deal is very close and may be announced over the weekend.

This may sound like very good news, but investors still consider a technical default as a possible. U.S. Treasuries yield continue to rise. One month bond yield surged above 6.0%, which is the record for the last 20 years. Ten-year bond yields jumped to 3.8%, the highest since March 2023. The rise of the short term bonds’ yields elevated risks of a technical default, while ballooning yields of long-term debt point to a rising possibility of interest rate hikes by the Federal Reserve (Fed). The Federal Open Market Committee (FOMC) Minutes that were released this week, have no univocal guidance on whether the interest rate hike cycle is over or could be continued.

Macroeconomic data released this week also indicates that the American economy is stronger than expected. Thus, the probability of an interest rate hike by 0.25 percentage points jumped to 36.6% from last week’s 20%.

Technically, the S&P 500 index has an upside formation with targets at 4500-4600 points. This formation will expire at the end of this week and will be replaced by a less aggressive one with targets at 4230-4330 points. The U-turn possibility when the index crossed the support at 4120-4140 points to the downside will also be removed this week.

The oil market is struggling to avoid prices plummeting towards $70 per barrel of Brent crude. However, the recession scenario chances are high in the oil market as Brent crude prices continue to tumble towards $40-60 per barrel, which is the recession target. Prices are trying to move to the $67.00-69.00 level per barrel. Once they breakthrough this level they may accelerate further down. However, this will largely depend on the efforts of the Organisation of the Petroleum Exporting Countries and its allies, known as OPEC+, to stabilise prices. The OPEC+ will meet next week.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. But the situation has changed dramatically as the important support level of $1980-2000 per ounce was smashed and bullion prices dropped to $1940. Short positions were opened after prices tested the $1970-1980 former support level with targets at $1880-1900 per ounce.

The Greenback is regaining its upside momentum amid positive developments in debt ceiling talks and positive economic data that displays the strength of the American economy. An expected deficit of Dollar liquidity is also contributing to a rising Greenback. So, EURUSD short trades will be intact for some more time. Thus, short trades for EURUSD opened at 1.06700-1.07200 should be closed at the 1.06000-1.06500 area.