The S&P 500 broad market index futures
experienced a gain of 2.5% this week, reaching 5250 points, with a new all-time
high at 5268 points achieved on Thursday. This surge came after the Federal
Reserve (Fed) conveyed a notably dovish message to the market.
The
regulator raised its forecast for the expansion of the American economy this
year, which is another confession of the rising inflation threat. At the same
time, policymakers left its three interest rates cuts expectation this year in
a dot plot chart. This might look controversial. But, it may also be a first
step to the new reality that suggests that inflation could be running above
2.0% target to consider it optimal. This new reality might also be an illusion.
But without accommodation to it the Fed could be missing out the game, as it
simply has no options to cut its Fund rates with inflation that never come
close to the 2.0% target. Without this flexibility the Fed may endlessly waiting
for an opportunity to restore its accommodative stance, while the economy would
further slow down. This could be also inappropriate3 ahead of the Presidential election
in November 2024. The Fed is already involved in this political process. Thus,
the Fed has to lower its rates in June to play into the hands of Joe Biden. Otherwise,
stocks may tumble just before the elections.
This logic
come in line with Fed actions that is sending dovish signals before interest rates
cut in June. Although, there is no guarantee it would do so. There are many
downside factors that could facilitate this move, but rising oil prices may erase
these efforts. Bets on interest rates cut in June jumped to 68.3% from 53.0%
earlier this month, making this scenario a basic one.
The debt
market seem no to share this timeline completely, but it also seem to incline towards
this idea. The 10-year Treasuries yields gradually dropped to 4.24% from 4.34%
earlier this week.
The U.S.
Dollar demonstrated odd reaction when it initially dropped by 0.7% on Wednesday
followed by a strong recovery by 1.2% on Thursday and Friday. This might be an alarming
signal, as investors are seeking shelter. Meanwhile, investors believe that the
rise of the Dollar was prompted by the decline of Chinese Yuan. Anyway,
investors should mark in mind the rising warning level to be ready for possible
volatility spikes.
The S&P 500 index has
exceeded the final upside target zone at 4850-4950 points and missed potential
correction opportunities. The next window of downside correction opportunities
will open next week. So, it would be wise to follow any reversal patterns that
may appear on the chart. The existing reversal pattern is indicating a standard
correction of 5-7% within the next week. The starting point of this correction
is yet to be defined, but potential downside opportunities may emerge by the
end of March. The nearest resistance is at 5300 points, while support is at 5200-5220
points.
Oil prices failed to
pass the resistance at $87.00-92.00 per barrel of Brent crude and retreated to
$85.00. The upside factors for prices seems to be fading. The nearest
resistance is at $87.00-92.00 per barrel, while the support is at $81.00-83.00
per barrel.
Gold prices, having
reached mid-term upside targets at $2000-2100 per troy ounce, established a new
all-time high at $2222 after the Fed send clear dovish signals to the market. The
nearest resistance is at $2210 per ounce, while support is at $2110-2130. A
technical period favorable for downside scenarios has started. It will last by
the mid-April.
There is a real mess
in the currency market. The Greenback first fell by 0.7% instantly after the
Fed meeting, and reversed sharply by 1.2% on Thursday and Friday. Dovish signals
sent by the Fed are clearly negative for the Dollar, but it is strengthening. The
EURUSD is close to alter its formation to the downside. It remains risky to bet
on both the rising and declining EURUSD, with a return to the 1.11500-1.12500
area likely, but a drop to 1.05000 should not be excluded.