The parade of central banks across the world is over. Major central banks have disappointed investors as both the Federal Reserve (Fed) and the European Central Bank (ECB) have slowed down interest rate hikes by increasing them by 50 basis points instead of the previous 75 basis points. But they both made it clear that the terminal interest rate level would be higher and would hold longer than investors previously expected.
Central banks are scheduled to have their next meetings in early February 2023. So, monetary policymakers on both side of the Atlantic have flagged stocks indexes to go down in the nearest seven weeks. This downside scenario became even more realistic after the release of disappointing retail sales data in the United States showed a fall of 0.6% month-on-month.
A large block of macroeconomic data this Friday, including inflation in the Eurozone and business activity (PMI) in the U.S. could hardly improve negative sentiment. However, any further contraction of PMIs may accelerate the decline of the stock market.
These fundamental considerations have been confirmed by the technical picture as the S&P 500 broad market index has moved to the aggressive downside formation with targets at 3700-3800 for the end of this week. If the stock market benchmark fails to recover to 4030-4050 this Friday, which is highly unlikely, it could plummet to 3400-3500 points next week. So, if anybody has expected the alarm bell to sound here it is. The final downside targets are very deep at 2000-2200 points.
The recent correction in the oil market where Brent crude prices recovered to $83 per barrel, confirmed the downside trend. Russia has still not responded to the price cap on seaborne oil at $60 per barrel but is rumored to do so soon. Meanwhile, recession fears are pressing down crude prices with minor chances for an upside recovery. Brent crude prices are hoovering slightly above the resistance at $78-80 per barrel, but that is seen to be temporary, and would eventually lead to a decline towards the nearest support at $68-70 per barrel. Extreme downside targets are intact at $60-70 per barrel.
Gold prices are charting an upside formation with targets at $2000-2100 per troy ounce by the middle of 2023. Prices may move even faster if technical targets at $1800-1805 per ounce are reached next week. This would activate an aggressive scenario with targets at $2050-2150 by the middle of February.
The money market continues to experience elevated volatility that prevents the use of short-term signals. So, it is better to place orders that are attached to longer perspectives. Short trades for AUDUSD were opened at 0.68000-0.68500, and for EURUSD at 1.05000-1.05500. Downside targets for these trades are at 5000 points below opening prices. The same applies to stop-loss orders that are 5000 points above order prices.