Investors hope the rhetoric of less hawkish monetary policy trajectory would continue. S&P 500 broad market index rose to a new high at 4275 points, a record since May 5. This is even slightly above the upper margin of the resistance zone at 4150-4250 points. The upside targets are seen at very extreme levels at 4350-4450 points. But, in order to rich these targets the story of dovish Federal Reserve (Fed) need to sound louder.
A slowing down of Consumer Price Index (CPI) in the United States in July to 8.5% from 9.1% a month before and slowing down of Producer Price Index (PPI) to 9.8% from 11.3% has played its positive role. Investors are expecting for July Retail sales figures to confirm a slowdown of consumer activity. The forecast for July is rather weak at 0.1% from 1.0% in June. Weak Q2 corporates earning reports from Walmart and Home Depot are expected to confirm this slowdown too.
If a slowdown would be confirmed this would ease inflationary pressure and possibly lower interest rates hikes by the Fed. Such confirmation and investors’ expectations are positive for the market, but not enough to continue the rally. A kind of confirmation from Fed officials would be still needed.
Federal Open Market Committee (FOMC) Minutes would be published on Wednesday, and investors would scrutiny the report to find any dovish signs from the Fed.
Technical picture of S&P 500 index is above the 200-day moving average and is still inside an upside formation with primary targets met at 4150-4250 points and secondary extreme targets at 4350-4450 points. Baseline scenario suggest that the index could not hold at such high altitude. So, a small short position opened at 4250 points is justified. If the index continue up to 4290-4300 points another 30% of planed amount short position could be opened.
The oil market situation is still mixed without any particular reason for price ups and downs. Brent crude prices dropped below $100 per barrel. The upside scenario with a primary target at $135-145 per barrel and extreme secondary targets at $160-170 per barrel remains intact. However, no triggers that could move crude prices further up are seen at the moment.
Gold prices are struggling to hit the resistance at $1800-1820 per troy ounce. Prices rolled back to $1775 per ounce at the beginning of the week. Any long positions are very risky to be opened now. So, it is better to wait for gold prices to show clear signs of the reversal to open long-term short positions in September with targets at $1350-1450 by the end of October.
The U.S. Dollar restored its upside trajectory across all major currencies. EURUSD dropped below 1.02000 and may change its formation to the downside if the day would be closed below this level. The primary downside target would be then set at 0.99500-1.00500. There are no reliable entry points so far.
GBPUSD turned aggressively downside towards 1.18000-1.19000 by the end of the week. A strong resistance level at 1.21000-1.21400 could be very interesting to open short positions once reached.