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  • Weekly Summary: Fed Support to the Strains of Lebanon War Drums

Weekly Summary: Fed Support to the Strains of Lebanon War Drums

This week is ending on a positive note. The S&P 500 broad market index surged by 4.8% to 4315 points. This Thursday recorded the best daily performance of the benchmark since April. U.S. 1o-year Treasuries yields scaled back almost 0.4 percentage points from the record 5.0%. The U.S. Dollar lost 0.5% during the week.

This is a very bright picture for the market. The Federal Reserve (Fed) alone made all this possible, when it left its interest rates unchanged at 5.25-5.50%, and its Chair Jerome Powell signaled a possible end of the interest rates hike cycle. The S&P 500 made all the upside of the week during Wednesday and Thursday. Moreover, Powell was likely aware of the cooling of the U.S. labour market in October. His comments about the importance of the labour market data are seen logical in this regard. Our statistical modeling shows that Nonfarm Payrolls could be at 160,000-180,000 in October, missing consensus at 180,000. The unemployment could rise to 3.9% from the previous 3.8% considering initial jobless claims rise by 150,000 in October. If this calculation are true than the dovish comments made by Powell are logically explained by the cooling of the labour market. This would be a positive for stocks in a short term, but a rise of unemployment would be a bad sign for corporations in the long term.

Treasuries yields and the U.S. Dollar are likely to deteriorate on a weak labour market report. However, geopolitical factors may change the picture. Lebanon is likely to declare a war on Israel, as its cease-fire ultimatum in Gaza strip to the United States expires today. 

Oil prices are performing moderately with a rise by 2.5% on Thursday. However, the Iran-backed Hezbollah may turn this Israeli-Palestinian conflict into a full-scale regional war in the Middle East. This is a huge risk for the oil market, and consequently for the debt, currency markets and stocks too. Thus, the positive news from the Fed could be easily overshadowed in case of Lebanon involvement into the conflict. Traders should keep this in mind before signing off for the weekend. 

Technically, the S&P 500 index downside formation with a primary target at 4100-4150 points and extreme targets at 3700-3800 points has changed to the upside. The best thing a trader could do now is to move the stop loss away from 4360 points close to the opening price to avoid losses. 

Oil market has become the most important indicator of the situation in the Middle East. Brent crude prices have widened a triangle that indicates a nearing resolving of the current tensions by the end of next week. This doesn’t meant that the price may not exit the triangle earlier. The triangle is limited with the $90.00-91.00 per barrel from the upside and by the $86.00-87.00 per barrel from the downside. 

Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. The resistance at $1910-1930 was smashed. Prices are moving towards around $2000 per ounce. There was no sound retest of the $1930 level. Thus, any long trades that were opened are likely to be closed at $2000 per ounce level. This doesn’t mean that prices would not move to $2100 per ounce, but this move would be very risky to follow.

The Greenback is going down this week. Loose escalation in the Middle East doesn’t allow it to strengthen. There are almost no good trades at the moment. A short trade with a small amount for GBPUSD from 1.21150 with targets at 1.20500 and 1.19700 was closed at the stop-loss at 1.21550. No further trades are open.