Weekly Summary: The Shutdown is Close, the Dollar Retreats

U.S. stocks are closing this month and the third quarter in the negative zone. There are signs of a possible recovery after Federal Reserve (Fed) members have eased hawkish rhetoric of the regulator. 

Minneapolis Fed President Neel Kashkari said that a U.S. government shutdown or a prolonged strike by workers of the automotive industry may cool the economy down. So the Fed will have to do nothing more to slow it down. “If these downside scenarios hit the US economy, we might then have to do less with our monetary policy to bring inflation back down to 2% because the government shutdown or the auto strike may slow the economy for us,” he said. Fed’s Richmond President Thomas Barkin said that more data is needed before making any monetary decisions. “The path forward to me depends on whether we can convince ourselves inflationary pressures are behind us, or whether we see them persisting,” Barkin said. “I will be watching the labor market closely for those signals.”

These testaments pushed back U.S. Treasuries yields to 4.54% from 4.68% for the 10-year benchmark debt. The S&P 500 broad market index recovered 1.8% to 4319 points, while the U.S. Dollar lost around 1.0% in the last two days.

The month of October could be a very controversial this time. Statistically it is the second most negative month for the stock market. It is worth to be reminded that the most devastating crises of 1929 and 1987 has started in October. On the other hand, traders at Wall Street sometimes call October as a “bears killer”, as it is regularly a month when Santa Rally is starting. So, the current situation in the U.S. stock market is uncertain. However, it is more of a choice between a massive correction and a small upside than a small correction and a rally. If the debt yields would resume climbing after a short break than we will likely see stocks plummeting. If the Fed continues to calm down investors there might be some chances of a small upside by the end of 2023. 

Personal Consumer Expenditures (PCE) Price Index data that is going to be released today could signal further direction of the market. A reading in line with expectations at 3.9% YoY in August could support positive developments in the stock market. NonFarm Payrolls data for September would not be published next week due to the U.S. government shutdown.

Technically, the S&P 500 index downside formation with a primary target at 4100-4150 points and extreme targets at 3700-3800 points has not changed. The nearest support is at 4290-4310 points. Short trades could be considered at 4390-4440 points. 

Brent crude prices have made it above the resistance at $92.00-94.00 per barrel. But they continue to test this resistance. So, it would be better to wait for the price to climb to $96.00 per barrel threshold to confirm a bullish victory. This would send prices further up to $100.00-103.00 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. Prices have dived below the support at $1910-1930 per ounce. The major question is will the retest this level or fall straight down towards $1800-1820 per ounce.

The tension in the currency market is easing. A reversal pattern for the Greenback is active. A long trade with a small amount for GBPUSD from 1.23300-1.23500 with a target at 1.26200-1.26400 is open. The first target is at 1.2400-1.24500. This is the level, where the decision to keep the trade or close it should be made. The EURUSD long trade from 1.06200-1.06500 with a target at 1.0800-1.08200 was closed with minor losses. 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.