The beginning of the week seems to be pretty encouraging as financial
markets rose despite absence of American and Chinese investors. European stock
indexes closed well above last week’s levels. British FTSE 100 after an
announcement of possible early lockdown lifting in the United Kingdom added
more than 1%. U.S. stock indexes futures finished green on Monday with an
average 0.3-0.5% gains. Crude oil prices jumped to 52 weeks high at $63.7 per
barrel of Brent crude benchmark amid rising geopolitical tensions in the Middle
East.
With such an impressive impulse, risky assets could rise further on
today, but are seen to run out of steam without the liquidity provided by
American investors.
Many investors are waiting for American investors to resume the rally
after worse than expected inflation data and soaring U.S. Treasuries yields to
place their own bets. However, today we may witness another day of uncertainty before
important data on Retail Sales and Producer price index would be released on
Wednesday. Consensus forecasts are positive fueling fears of winding up
inflation spiral. We should also watch for FOMC minutes to be released this
Wednesday for any signs of rising inflation expectations.
We may expect some extra success financial stories of U.S. companies
reporting this week, but only Walmart may surprise the market with impressive
Q4 reporting. The retail giant is desperately to adjust its services to a
successful Amazon business model. Black Friday’s 2020 sales result may boost
retailer’s revenues to beat expectations.
Technical picture for the S&P 500 broad market index provides no
clear signals for a further direction. We see strong resistance level at 4020
points. So, any sell positions from this level to the support at 3900 and 3810
points. Mid-term targets of market correction at 3350 and at 2850 points are
still intact.
Technical and fundamental factors in the oil market are flagging for a
correction as global economic slows down for the fifth week in a row and OPEC
lowers its demand forecast for 2021. However, crude prices jumped higher
unexpectedly after Saudi Arabia said it has foiled a Houthi multi-drone attacks
that targeted Abha airport and other objects that were claimed civilian by
Saudis.
Would this tension rise higher pushing “black gold” prices up is not clear now. Technical
picture suggests that without this tension Brent crude prices would hardly
break through $64 per barrel. So, we may open sell positions close to this
level targeting $62.6 and $61.50 per barrel. The alternative scenario may be
activated in case of other acts of violence that would escalate tension in the
region. In this case, Brent crude prices may break through $64 mark to the next
target at $68 per barrel.
Gold prices are sliding pressured by the rising U.S. Treasuries’ yields
that went up to 1.21%. If yields continue to rise as inflation expectations are
rising it would certainly pressure gold prices below $1800 per troy ounce. If
this level would be broken, next targets would be at $1650 and at $1700 per
ounce.
Currency market is seen mixed. The Euro has to decline as rising U.S.
Treasuries’ yield should increase the demand for the Dollar. Eventually this
may be true, nut technical picture does not suggest that at the moment as
strong support level is at 1.21200 and strong resistance level is at 1.23000.
The British Pound prices technically formed a resistance at 1.39000.
Depending of its strength the Cable may rebound to the support levels at
1.37600 and 1.36500 as a primary scenario, or could jump to the resistance at
1.43000 already this week.
The USDJPY is likely to be traded in a narrow sideways range this week.
If the uncertainty in the U.S. stock market would be removed its direction may indicate
the USDJPY to rise to the 107.60 or to decline to support levels at 104.90 and 104.00.