Weekly Summary: Don’t Be Fooled by Triple Witching Euphoria

Triple Witching Friday, when index options index futures and stock options simultaneously expire, today will be marked by $4.2 trillion expirations, which is a very nervous end for this hectic week. How this euphoria will affect investment portfolios on Wall Street is unknown, but it will certainly raise volatility with an extension of the existing trend.

Thus, we may expect the S&P 500 broad market index to burst into action towards extreme targets at 4550-4650 points. Although, even existing levels for stocks in America are seen to be extremely high, and the U.S. Dollar too low, the Federal Reserve (Fed) and the European Central Bank’s (ECB) hawkish actions doesn’t provide any buy opportunities for risky assets.

The Fed has left its interest rates unchanged as was expected, but provided forward guidance of two more rate hikes this year. Simultaneously, the Fed has improved its economic expansion expectations and changed its inflation forecast to a worse scenario. So, the monetary watchdog is expecting to continue monetary tightening amid mounting inflation pressure. The investment crowd, in contrary, is expecting the Fed to make the last interest rate hike for 2023 in July. Investors are usually right in their expectation, meaning that something should happen after July to lower inflation in the United States, and force Jerome Powell and Co to terminate their monetary tightening cycle. The same is true for the ECB and its frontwomen Christine Lagarde, who is signaling to the continuation of interest rate hikes.

Anyway, the rally in stocks is good, but it is not an appropriate time to join it before Triple Witching. Quite the opposite, it would be better to catch a roll back of the EURUSD from the area of 1.09500-1.10000 with the target at 1.08000-1.08500. It will be a wise move to wait for next week when things are expected to settle things down after a long weekend in the United States. Jerome Powell is going to testify next week, and will provide markets with a better explanation about the inflation situation and monetary policy perspectives.

Technically, the S&P 500 index continues to have an upside formation with targets at 4250-4350 points, that have already been met. The market is looking for an extreme upside scenario with targets at 4550-4650 points to be achieved during Triple Witching. This being said, the room for an upside is very limited.

Crude prices are consolidating below the resistance level at $76-78 per barrel of Brent crude, awaiting a good moment to drop towards $67-69 per barrel. Once this level is broken, recession scenario chances will become very high. Its targets are at $40-60 per barrel of Brent crude. Trader should not forget the Organisation of Petroleum Exporting Countries and its allies (OPEC+) could interfere to support crude prices. So, it may not be the best moment to trade crude.

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. But the situation has changed dramatically as the important support level of $1980-2000 per ounce was smashed. Short positions were opened after prices tested the $1970-1980 former support level with targets at $1880-1900 per ounce.

The Greenback continues to retreat despite solid macroeconomic data, as risky assets are rallying. The American currency is looking oversold, but a long trade is not the best solution at the moment. It would be better to wait for another upside move by the U.S. Dollar to seek out sell opportunities for the Greenback.