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  • Weekly Focus: Powell Plays a Shell Game, Non-Farm Payrolls Contributing

Weekly Focus: Powell Plays a Shell Game, Non-Farm Payrolls Contributing

The U.S. stock market has performed its best week so far this year, adding 1.8% to the S&P 500 broad market index that rose to 4050 points. The rise was recorded despite the accelerated Price Managers’ Index (PMI) to 50.6 points during February from 46.6 points in the previous month, confirming persistent high inflation.

There is no logic behind this optimism besides Rafael Bostic words, as he is expecting the Federal Reserve (Fed) to put the interest rate hike cycle on pause this summer. The market is seen to pounce on any reason to continue up even if it is an illusion. The situation became even more amusing after San Francisco Fed President, Mary Daly - who is a non-voting member of Federal Open Market Committee (FOMC) - said Fed policymakers will need to raise interest rates higher and keep them there longer to tackle higher prices. However, the stock market is simply ignoring any downside warnings. The S&P 500 index continues to move up on the lower-than-expected growth of China’s GDP of 5% that would lower the inflation threat for the United States.

It is really hard to tell how long this mental shell game will last. Technically, we may expect the stock market to drop within two weeks. But the Fed is a very experienced “blackleg” that succeed in moving the decline of stock indexes from December 2022 to March 2023. So, it is better to not underestimate the power of its manipulation experience even in an unpromising situation.

Fed’s Chair, Jerome Powell, will testify in the U.S. Congress on Tuesday and Wednesday and is likely to make a surprise note while institutional market players believe he should have a reasonably hawkish rhetoric considering the existing economic situation.

Labour market data in the U.S. will be published this Friday. It is quite overheated as the Fed has failed to cool it down. Eventually, Mr. Powell may burn his “soft landing” promises over it to make decisive remarks to lower inflation perspectives.

Technically, the S&P 500 index continues to move within a downside formation with targets at 3650-3750 points. The index is slightly above the strong resistance level of 4020-4040 points. It has a resistance level at 4100-4120 points that may move the formation to the upside once crossed. It is better not to look down as the nearest support level is at 3970-3990. Everything below this would lead to a steep decline towards 3650-3750 points.

The oil market continues to hover in the middle of the wide trading range of $79-89 per barrel of the Brent crude benchmark. This time the price is ready to breakthrough and recession logic suggests that prices are likely to go down. There is a lot of news that is trying to push prices down, like lower-than expected GDP growth in China, higher crude release prices of Saudi Arabia, and some other news that had minor effects on prices. Something big should happen to push the price in either direction. Recession logic suggests that prices are likely to go down despite traders earlier expectations that Brent prices may jump to $100 per barrel in the second half of 2023.

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 failed to dive below the support level at $1790-1810 per ounce, and are recovering to $1840-1850 per ounce. Still, the support level at $1790-1810 per ounce should be monitored. If prices pass this support level and continue down, then the scenario of a possible change of trend to the downside may become a reality. In this case prices may rewrite last year’s lows of $1600-1650 per ounce.

The U.S. Dollar may continue strengthening. Considering the high volatility in the market, it is better to place orders 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. The decline of the EURUSD to 1.05000-1.05500 could be used to close half of the trade, and the other half should be continued until the targets of 1.03000-1.03500 are met.