Weekly Summary: “Hawks” Are Bombarding Markets

The S&P 500 broad market index lost around 1.0% to reach 4360 points during this week. Brent crude prices were down by 4.5% to $72.96, while the U.S. Dollar index gained 0.8%.

Risky assets are seen to be attacked by “monetary hawks” from leading central banks. Firstly, the Federal Reserve’s (Fed) chair, Jerome Powell, confirmed its hawkish stance of further rising interest rates by 0.25 percentage points two more times this year. The Bank of England (BoE) then delivered an unexpectedly high-rate increase of a 0.50 percentage point after consumer inflation in May remained at 8.7% YoY. Norges Bank, the central bank of Norway, also unexpectedly raised its interest rates by 0.50 percentage points. U.S. Minister of finance, Janet Yellen, said that "we probably need to see some slowdown in spending in order to get inflation" under control.

These hawkish efforts were supported by the declining business activity indications as the Purchasing Managers’ Indexes (PMI) continue to deteriorate in leading economies. The Eurozone’s Manufacturing PMI fell to 43.6 points in June compared to 44.8 in May, the same indicator dropped to 46.2 points from 41.1 points in the United Kingdom. If this trend also continues in the United States then investors may wonder what exact interest rates hikes Mr. Powell is talking about amid a stalling economy?

It seems that major central banks are chasing each other to set the highest interest rates to have more room to decrease them later during a severe turmoil that is very closely approaching. The European Central Bank’s (ECB) President, Christine Lagarde, may also add some hawkish notes next week. If she sets a very hawkish tone then risky assets may be in danger.

Technically, the S&P 500 index continues to have an upside formation with targets at 4250-4350 points, that have already been met. The market has failed to move alongside an extreme upside scenario with targets at 4550-4650 points during this week, and is starting to chart a correction pattern. The index is sitting on the support at 4340-4360 points. The next support level is at 4240-4260 points.

Crude prices have dropped towards the support at $67-69 per barrel of the Brent crude benchmark. Once this level is broken, recession scenario chances will become very high. Its targets are at $40-60 per barrel of Brent crude. Traders should not forget the Organisation of Petroleum Exporting Countries and its allies (OPEC+) could interfere to support crude prices. So, it may not be the best moment to trade crude.

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. Short positions were opened after prices tested the $1970-1980 former support level with targets at $1890-1910 per ounce. The first half of this trade was closed at $1910 per ounce, while the second half was left open with the stop-loss order moved to $1980 to avoid any losses, and amid expectation of some extra profit.

The Greenback recovered some losses during the week which allowed it to get a decent profit on EUR/USD short trades that were opened at 1.09500-1.10000 with a target at 1.08000-1.08500. The American currency has an advantage over its peers, but it is too risky to go long on the Greenback at the moment. It would be better to wait for another upside move from the U.S. Dollar to seek out sell opportunities for the Greenback.