Stocks Ran Out of Fuel

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.

S&P index lost 1.5% just within two days and then jumped to 4175 points and plunged to 4120 points at the end of the week.

All this looks very suspicious given overall positive tune of the macroeconomic data this week. The unemployment in the United Kingdom fell from 5% to 4.9%, continuous and initial jobless claims in the United States fell to 12 months lows. Quarterly reporting by the U.S. corporates is most impressive as the majority of the American companies are beating revenue forecasts. European central bank stood still and took a pause to consider possible changes of its monetary policy later in June.

It seems as if the market considered everything so far and needs new ideas to resume the rally. Such story could come from the infrastructure plan proposed by U.S. President Joe Biden, or further signs of de-escalation between the U.S. and China, or maybe another convincing statements by the Fed of its continuous ultra-lose monetary policy.

However, even if such story appears the rally in stocks may be resumed next week only. It could be triggered by Fed’s statements after its meeting next week with a possible support of reporting stock market giants such as Facebook, Alphabet, Apple and some other that could power stock market engines in case of inspiring reporting results.

Today U.S. stocks are likely to remain within wide trade range between the resistance at 4175 points and the support at 4110 points despite incoming data of business activity in G7 countries. The downside scenario with targets at 4040 and 3930 points is seen as most possible if the index fails to hold above 4175 resistance level.

Crude oil market is monitoring U.S.-Iran negotiations over nuclear deal. U.S. reported that “some progress” is being reached, but still a lot of to discuss. Rising infection if India and Japan may undermine fragile global recovery and demand for crude. United States has unveiled the goal to reduce carbon emissions by the year of 2030 by 50-52% from 2005 levels. That would certainly affect the demand for fossil fuels. Brent crude benchmark prices were quite reluctant to this statement but fell to $65 per barrel during this week. Any further price volatility this week is expected within the lateral channel.

Gold prices almost hit $1800 per troy ounce landmark. Easing geopolitical tensions in the Eastern Ukraine prompted gold prices to drop to $1780 per ounce. Nevertheless, since yields on the U.S. ten-year Treasuries are still below 1.6% gold prices have a chance to rise to $1800 per ounce again with a further upside potential.

The Greenback is trying to restore its positions as EURUSD slid below first resistance at 1.20500 and is aiming for the support level at 1.19400.

The GBPUSD has performed excessive volatility this week surging to 1.40 level and then diving towards the support at 1.37700.

The USDJPY is almost at its downside target at 107.60. If the target would be finally reached the Yen may rebound to 109.00 or continue to dive to 107.60 with a possible downside target at 103.60.