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  • Weekly Focus: Oil on the Upside March, S&P 500 on Pause, Non-Farm Payrolls are on Their Way

Weekly Focus: Oil on the Upside March, S&P 500 on Pause, Non-Farm Payrolls are on Their Way

The S&P 500 broad market index met its primary target of 4200-4350 points on Monday. But rolled back to 4150 points. The rise was fast as the index was at the 3800-3900 area last week. But even this high speed was not enough to go up further aggressively to the extreme targets of 4400-4500 points this week.

We should not expect the index to perform another rapid upside this week, while it may hit the upside of 4250-4270 points. However, a positive story is needed to hit these targets. It could be a story about the lifting of the COVID-19 restrictions in China where the number of new daily infections have decreased to 2,000 cases from 6,000 enabling authorities to ease strict pandemic restrictions in Beijing and Shanghai. However, this positive story is already priced in as Chinese authorities have previously announced this ease. Moreover, it would be offset by the expected GDP slowdown in Canada and possible interest rate hikes by the Bank of Canada from 1% to 1.5%.

The second negative driver is crude prices that have gone sky-high dragging inflation with them. Brent crude benchmark prices have crossed the second important resistance level at $120 per barrel. If prices cross the ultimate resistance level at $136-137 per barrel, they will exponentially jump to the all-time highs of $170-180 per barrel.

The major question is by how much will this spike of 70-80% within one month add to the inflation spiral in the U.S and other countries. The European Union nations were certainly not ready for such a scenario as it approved the partial ban on oil imports from Russia. The next move will come from the central bank as it may only have one option left: a shocking interest rate hike.

The global economy would spiral down in this case followed by the stock market similarly to the 2008 scenario. Any other drivers, like the Non-Farm Payrolls or European Central Bank’s (ECB) president Christine Lagarde, are not looking good and of minor importance considering such a disastrous background. The countdown has begun as record oil prices may devastate markets in June, forcing the U.S. Federal Reserve (Fed) and the ECB to act swiftly. The second and primary knockdown for the markets will emerge this autumn. It may be similar to the 2008 Global Financial Crisis, when the S&P 500 index lost 58% off its peaks. This time it will likely  plunge to 1900-2000 points.

This is a huge drop that presents bot great danger and excellent opportunities. However, it is hard now to assess timing and entry points to open short positions. It would be better for the S&P 500 to score at least4300-4400 points, but this could be wishful thinking in the current situation.

Oil is rallying, but those who wish to attend the rally to $170-180 per barrel of Brent crude should perform caution and set the stop-loss order above the opening price as soon as it is possible to secure long positions from extreme volatility.

Gold prices have entered a downside period. Thus, traders must be prepared to open short positions with the first target at $1730 per troy ounce. The downside may last until the end of July. So, it is hard to say where the price may stop falling.

EURUSD is consolidating after reaching the targets at 1.07500-1.08500 but has a further small upside potential. The pair remains within an aggressive upside pattern but bears a high risk. Opening any positions on the pair has a great potential risk.

The same situation can also be applied to the GBPUSD that met its targets at 1.26000-1.27000. So, we may witness the entire FX market entering summer sideways.