U.S. stock market again reconfirmed its strength with S&P 500 broad market index above key resistance level at 4175 points, suggesting further growth. But we should not be hasted ahead of important events this Wednesday and Thursday.
On Wednesday two important events are going to happen: Federal Reserve may provide a framework of exiting policy towards tighter monetary regulation; U.S. President Joe Biden will testify in front of the Congress with a possible new tax policy for corporates and wealthy individuals.
We have to take in account that Federal Reserve and Bank of Canada are acting as a team, and we may expect the Fed would follow BoC after the letter has slashed its bond buying program by a quarter last week. We should also keep in mind the words of Fed’s chairman Jerome Powell who said last week that QE would be reduced “well before” interest rate increase. So an intriguing question may arise – are we at the moment of “well before” to start reducing QE?
If this moment has come and the Fed would announce such a decrease, markets would reverse into correction that may be amplified by Joe Biden’s speech. Certainly, he should talk a lot about COVID-19 situation, about new political and economic agenda. However, investors would wait for any words about changes in tax policy after rumors that capital gains tax could be double to 40% and after that a step back to 30%.
Besides, this week U.S. first quarter GDP figures would be published following by earning report by “big four” tech giants Microsoft, Apple Facebook, Amazon and Tesla as starting gun. All are expected to present strong first quarter earnings results. However, some hitches might occur in operational results. The pandemic has seriously amplified their results in 2020, and it might be difficult to catch up with last year’s strong performance. We may recall as Netflix failed to meet analysts’ expectations regarding the increase of its subscribers number, and its shares plunged by 11% in a single day despite excellent financial results. Similar difficulties may happen to Apple amid global semiconductor’s and microchip deficit, and to Amazon as “stay at home” regime is being eased for consumers and due to the additional spending to comply to lockdown operation regime during the pandemic. So, we should treat strong corporate earnings reports this week not as a fact, but as a high possibility.
All these events may produce high volatility to S&P 500 index on Wednesday and Thursday. Technical pictures suggests a desperate fight for 4175 landmark level. If the bills would succeed moving the index value above 4200 points then a possibility of a rally to 4500 points would rise. In the other scenario, the index may bounce from 4175 points and may slide below 4100 points that would open the path towards 4040 and 3940 points.
Crude oil market has more bearish picture with the prime resistance at $64.40 per Brent crude barrel that guards the path to $60.00 per barrel level. If this prime resistance level would sustain we may expect prices to recover to $65.80 and $66.80 per barrel, where sell position would be interesting to consider. Traders should also monitor OPEC+ meeting that is expected this week. We expect no surprises with OPEC+ to reconfirm its planned crude production commitments in May-July. Negotiation between the U.S. and Iran over nuclear deal are also on the table.
Gold prices may continue to rise if yield on the U.S. ten-year Treasuries remain below 1.6%. It his ultimate condition would be met gold prices may briefly jump even to a $1850 per troy ounce level.
The Greenback has a moderate potential to decline further as EURUSD may extend its gains to the resistance level at 1.21800 where investors may find excellent sell opportunities with targets at 1.20500 and 1.19400.
The GBPUSD is close to a support level at 1.38300. However, that does not mean the pair is interesting to open buy positions. Quite the opposite, sell positions from 1.39400 or from 1.40700 are looking more justified. In case the Pound would slid below 1.38300 sell orders would also be interesting to consider.
The USDJPY has bounced from the important support level at 107.60. It would be likely to wait for the Yen to return to the resistance at 109.00 or 110.00 to resume selling of the pair.