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  • Weekly Focus: FOMC Minutes, U.S. inflation and Iranian Wild Card

Weekly Focus: FOMC Minutes, U.S. inflation and Iranian Wild Card

U.S. strong labor market report for September came as a real surprise at the end of last week. The impact of strong Nonfarm Payrolls was balanced by other weaker components of the report. But, there is nothing to balance the impact of new Israeli-Palestinian war.

Nonfarm Payrolls came much higher than expected with 336,000 new job created in the U.S. economy compared to 177,000 expected. Markets were shocked with the first negative reaction that send debt yields further up, and the U.S. Dollar strengthening. When the dust settled investors understood that, the unemployment level remained at 3.8% and hourly earnings have slowed down to 4.2% YoY in September. The structure of the employment is not solid too as the number of full-time employed is decreasing, while the number of part-time employees is rising. This send debt yields down to the starting point, and the Dollar rolled back.

This trend could be extended on Monday, but an escalating Israeli-Palestinian conflict shuffled the card deck. Palestinians are trying to get Iran involved in the conflict with a possible participation of Lebanese Hezbollah. This may bring the conflict to a new level with a threat of possible nuclear strikes exchanges between Iran and Israel. The involvement of Iran in the conflict will send crude prices up as the country controls Strait of Ormuz where 20% of world oil supplies are shipped. Further analysis make take us to a possible military escalation in Taiwan. This scenario is unlikely, as it will open a path to another world war.

Meanwhile, Brent crude prices jumped by 5% on the news, gold and other safe-haven assets also rally. Technically, the Greenback is moving inside a downside formation, which may mean a weakening Dollar by the end of the week. The conflict in the Middle East may also fade away by then. The U.S. Dollar has some other reasons for correction as the inflation in the United States is slowing down. Consumer prices in October are expected at 3.6% YoY, down from 3.7% YoY, Core CPI is seen to slow down to 4.1% YoY from 4.3% YoY in August.

Hopefully, the Federal Reserve (Fed) would not interfere with another portion of too hawkish comments. Than we may hope, the Greenback can roll back a little in the second half of the week. Risky assets could hope for some recovery too. The start of the Q3 reporting season in the United States could also contribute to this recovery. The largest U.S. banks will start to deliver their Q3 2023 earnings report this Friday. Third-quarter per-share profit in the banking sector is set to rise by 8.7%. Corporate sector is expected to lose less than 1.0% YoY in the Q3 compared to 5.0% YoY in the second quarter of 2023. 

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 4180-4200 points. Short trades could be considered at 4340-4370 points. 

Brent crude prices dived below $92.00-94.00 per barrel, and dropped to the support at $83.00-85.00 per barrel. If they fell below it the downside scenario would be activated. Ifs targets are at $55.00-65.00 per barrel of Brent 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. Prices have dived deeper to $1800-1820 per ounce target area. They are recovering towards $1870-1890 per ounce. If they fell to reach this resistance, they are likely to god down again. Any dive below $1820 per ounce may open a path towards $1730-1750 per ounce.

The Greenback is surging amid geopolitical risks. The primary scenario suggest that the Dollar continues to weaken. However, it may also turn to the upside towards a parity with the Euro on the recession fears. A long trade with a small amount for GBPUSD from 1.23300-1.23500 with a target at 1.26200-1.26400 is intact. If prices would go below the starting point the trade could be canceled. 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. This trade could be also closed it the AUDUSD will cross the 0.64500 mark.