Markets
have not acquired any certainty during the last week as the S&P 500 broad
market index is still hovering around the neutral support level of 4040-4060
points. This level neither indicates a possible upside nor a downside
possibility. However, room for stocks to move to the upside is increasingly contracting
at a rapid pace.
The
correction of the U.S. Dollar is signaling that investors are not willing to
follow negative perspectives that emerged after strong macroeconomic data in
the United States was released. This data is likely to give the Federal Reserve
(Fed) more room to practice extra interest rate hikes to cool down inflation.
Monetary
issues are likely to dominate this week as the Fed is going to release the
Federal Open Market Committee (FOMC) Minutes from the last meeting on February
1. The Personal Consumption Expenditures (PCE) price index, that reflects the
change in prices for personal consumption in the United States, is also of
importance this week as the Fed monitors this index in order to make interest
rate decisions.
Both pieces
of news are likely to resonate negatively with markets as FOMC Minutes are
likely to provide a negative feeling without Fed’s Jerome Powell’s comments about
cooling inflation, while the PCE index is likely to be higher-than-expected.
Markets are ready. But will these pieces of news be enough to push the S&P
500 index down below 4040-4060 points?
The answer will
likely be prompted by other stories that are outside macroeconomic data. These
stories are linked to the war in Ukraine that started almost a year ago. New
sanctions against Russia, new weapons provided to Ukraine, and a possible
response to it from Russia, that is expected to be announced by Russia’s
president Vladimir Putin on Tuesday, will define the market’s landscape this
week. Investors hope for a de-escalation of the war as this would allow stocks
to move above 4100 points if the movements of S&P 500 are considered.
However, the most likely scenario may result in intensified combat actions
before any peace talks can even start. In case of such an escalation
scenario, American investors may push stocks down below the support of
4040-4060 to hold the line when FOMC Minutes and the PCE index data will be
published.
Technically,
the S&P 500 index continues within the upside formation with the primary
target at 4100-4200 points, which has already been met. The index is now slightly
above the support level of 4040-4060 points. But this level is likely to go off
the radar, as the index may drop to 3990-4010 points, while the resistance
would be set at 4110-4120 points.
Brent crude
prices are consolidating in the middle of the wide trading range of $79-89 per
barrel with rising uncertainty. It is better to wait before prices break out of
the wide range of $79-89 per barrel in either direction. Recession logic
suggests that prices are likely to go down.
Gold prices
are moving inside the mid-term, upside formation with targets at $2000-2100 per
troy ounce by the middle of 2023. If the escalation scenario around Ukraine becomes
a reality, prices may rise to $1880-1900 per ounce. Even though odd price
growth in January may point to a possible change of trend to the downside
during elevated volatility to rewrite last year’s lows.
The money
market ignored any upside signals for the American currency in January, making
the Dollar oversold against other currencies. So, the Dollar is gaining
momentum and may continue to strengthen further. Considering high volatility in
the market, it is better to place orders that are attached to longer
perspectives. 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. However, the decline of
the EURUSD to 1.05000-1.05500 could be used to close half of the trade, and
reopen it when the pair rebounds to 1.06500-1.07000.