Weekly Focus: Stocks are Down ahead of Fed Meeting

The U.S. Stock market is mixed as expectations towards monetary tightening of the Federal Reserve (Fed) this Wednesday have eased. Investors are not betting on a 25-basis point interest rate hike, while it was 50 b.p. or even 75 b.p just a few weeks ago, along with the beginning of quantitative tightening of at least $100 billion a month.

But even with this quite favorable forecast, stocks are going down. It seems the market is unable to reach the upside by itself without any stimulus from the Fed. The Fed poured dozens of billions of dollars into the market every month over the last two years, but last week the money tap was closed. So, the decline seems logical as interest rates are expected to be hiked. What would happen when the Fed would start unloading a massive cliff of bonds from its balance sheet is scary to imagine. It is likely that the U.S. policymaker will avoid this option or will only use it for a short period of time. The down spiraling of the market may even force the Fed to return to wretched quantitative easing.

Military actions in Ukraine may eventually come to a halt soon. In this case U.S. stock indexes would attempt to reverse, but it is unlikely that this upside bounce would turn to a rally as few investors are likely to support it. So, it would be wise to hold short positions on the S&P 500 broad market index once it would be clear how the Fed would deal with the situation.

Technically, the S&P 500 is on the downside track with the target at 3950-4050. Aggressive short positions which were opened last week at 4310-4330 should be deducted by 70%. The rest of the short positions should be secured to minimize any possible loss.

Oil prices have been scaled back to $100 per barrel of Brent crude benchmark. The U.S. Administration is putting in efforts to convince Iran and Venezuela, which were once considered terrorist states, to increase oil pumping and deliver it to the global market. The upside scenario for Brent crude prices over $160 per barrel has been postponed but it looks like it could be quite realistic.

Gold prices rest on the support at $1920-1930 per troy ounce. It is important to monitor any possible downside breakthrough. Once this happens, prices may quickly dive to $1840 per ounce next week with a possible further target of $1750-1760 per ounce by the second half of April. The only thing that could reverse this scenario is possible geopolitical tension over Taiwan.

EURUSD is going down aggressively with a target at 1.06500-1.07500 by the end of the week. Long positions with the targets at 1.08900-1.09200 should be closed as all targets were met. Short positions are questionable as a possible reverse area at 1.10200-1.10700 is too wide, while risks ahead of the Fed’s upcoming meeting are too high.

GBPUSD is going down. The pair reached the support at 1.30000-1.30200 and may decline further to 1.28000-1.29000. There are no opportunities to open any positions at the moment.