Weekly Summary: Powell Was Silent, Prices Are Down

This week ends on a very positive note as the SS&P 500 broad market index rose by 2.3% to 3979.0 points, U.S. 10-year Treasuries yields are down to 3.43% from 3.56%, while the Dollar lost almost 2%. The market gained some inspiration after the Chairman of the Federal Reserve (Fed) Jerome Powell  did not make any hawkish statements during his speech during the Sveriges Riksbank symposium in Stockholm. He just reassured the audience that the Fed would adjust its monetary policy to inflation.

The market found this silence very empowering and saw it as a signal that the Fed may put a a milder monetary policy stance into action. These hopes were later supported by the inflation figures that came out at 6.5% for December vs 7.1% in November. Investors increased their appetite for risk, stocks indexes rose, while bond yields and the Dollar exchange rates were down. The banks’ earnings Q4 2022 reports on Friday are expected to be disappointing, but the market could simply ignore them.

The only rain on the market’s parade came from rather negative forecasts from the International Monetary fund and the World Bank. They have not only lowered their economic outlook for the financial year 2023-2024, but highlighted the elevated risks for 2023, including climate change, massive cyberattacks, and escalations of the war in Ukraine. It seems that both IMF and WB are hedging against every possible misfortune rather than sending out proven signals of a forthcoming crisis or trying to predict a “black swan”. It could also be seen as an effort to defend themselves from any possible accusations, even if the “black swan” does flay in another direction.

Technically, the S&P 500 index changed its formation to the upside with the primary target at 4100-4200 points. The index is now in the resistance zone between 3980 and 3990 points. It is likely to continue with this range in the first half of next week, or a scale down towards the support at 3900 points. The second half of next week is looking to be more positive, as the index may climb to the next resistance level at 4060-4090 point.

The oil market is experiencing a lot of small, but positive events that support crude prices, but do not change the overall outlook. Brent crude prices over $78-80 per barrel are seen to be a temporary departure from this level that could end a new selloff wave to the nearest support at $68-70 per barrel. The lowest targets are currently seen at $60-70 per barrel.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce by the middle of 2023. Prices have exceeded the upper margin of $1880-1900 per ounce that makes the outlook for future price movements quite uncertain. Odd price growth during the last week may suggest a further price rally without any stopovers, but also signal for a possible swift change of a trend to the downward during elevated volatility.

The money market has been divided. It 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. But now the U.S. Dollar is seen to be weaker against some currencies and stronger towards others like the Euro. Whether or not we will see the Dollar moving in different directions against a basket of other currencies remains to be seen in January. Nonetheless, short trades for EURUSD opened at 1.06700-1.07200 with a downside target at 5000 points below the opening level and the same 5000 points for a stop-loss order should be considered very attractive this January.