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  • Weekly Summary: Booming China’s Economy and Brent Crude above $94

Weekly Summary: Booming China’s Economy and Brent Crude above $94

This week was very dynamic and interesting. Positive macroeconomic data in the United States and China improved investors’ sentiment. The S&P 500 broad market index added 1.0% to 4500 points, Brent crude prices rose by 4.0% to $94.00 per barrel. The U.S. Dollar surprisingly strengthened instead of going into correction, but signaled a possible reversal.

Apple has mostly disappointed investors. Many consider R&D efforts by Apple ineffective. Elon Musk called adoption of USB Type-C for iPhone 15 “amazing”. Apple stocks went down by 1.5-2.0% during the week despite an upside movement of the stock market in general. 

Consumer Price Index (CPI) in the United States in August accelerated to 3.7% YoY from 3.2% a month before. But this increase was sponsored solely by rising fuel prices. Core CPI without volatile food and energy prices slowed down to 4.3% YoY from 4.7% YoY in July. Investors reacted positively, as they understand that lower core inflation would give no reason for the Federal Reserve (Fed) to increase interest rates above current expectations. This idea was also confirmed by declining bets on interest rates hike in November and December by the Fed this year, according to FedWatch Tool.

European Central Bank (ECB) has surprisingly signaled uncertainty in its further monetary action after rising its interest rates this week. Investors consider this uncertainty as an end to interest rates hike cycle by the ECB despite its President Christine Lagarde made it clear that the Bank will raise interest rates further if needed. “I’m not saying we are at peak rates,” she said on Thursday. She also waved away all rumors about possible interest rates cuts. "We have not decided, discussed or even pronounced cuts," Lagarde replied to a question. 

The U.S. Dollar surprisingly strengthened on the news. This looked like a massive taking out of stop-loss orders. The price is usually recovering swiftly after such false moves. But, then a much large move against the Greenback may start. Nonetheless. It is too risky to bet on this scenario ahead of the Fed meeting next week. The raid for taking out stop-losses could be replicated. But today is triple witching Friday that may help the Euro to recover.

Better-than-expected U.S. retail sales in August at 0.6% MoM supported stocks. But the most support came after China introduced new support measures for its economy. China’s central Bank cut banks’ reserve ratio, and boosted market liquidity, announced measures to support the Yuan. China’s Industrial production in August at 4.5% up YoY, retail sales rise at 4.6% YoY, strong domestic labour market restored optimism towards economic recovery on the world’s second largest economy.

Technically, the S&P 500 index upside formation is unchanged with a primary target at 4700-4800 points. The index may form a potential reversal next week, and may enter a correction with targets at 4400-4460 points. The upside scenario is also possible if the index will climb above 4580-4600 points. 

Brent crude prices have surged to $94.00 per barrel after a breakthrough of $83.00-85.00 per barrel. If prices would break through this level prices may climb above $100 per barrel. The downside scenario may be activated it prices will return below $92.00 per barrel. Then they would dive to $82.00-84.00. If prices would fell below $74 per barrel a recession scenario with targets at $64-66 per barrel of Brent crude will be the option. 

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. The nearest support is set at $1900-1920 per ounce. The support level will move to at $1910-1930 per ounce on Monday. If prices will be below it would be better to be prepared to open short positions.

The Greenback is forming a reversal pattern. A long trade with a small amount for GBPUSD from 1.25400 with a target at 1.26200-1.26400 could be interesting to catch this reversal move. The long trade in the AUDUSD from 0.63800-0.64000 with a target at 0.66500 and the stop-loss at 0.63200 is still open.