The Federal
Reserve’s (Fed) meeting is within arm’s reach, as the U.S. monetary regulator
is expected to announce the tightening of the monetary policy next Wednesday.
But investors are more worried with the pace of the tightening rather than with
the fact itself.
Fed’s
Chairman Jerome Powell and his team are varnishing their unwillingness to
tighten the screws due to the Russian-Ukrainian warfare. However, less tightening
in the face of 7.9% record inflation may mean a bigger reason to destabilise
markets. Investors may consider that galloping energy prices may unwind
inflation to 8.5-9.0% over the coming months. This may eventually push the Fed
to extreme interest rate hikes. So, the unexpected tightening by the Fed now
seems to be the best option. Lifting interest rates by 50 b.p. instead of 25
b.p. would demonstrate control over the economic situation and may contain
inflation expectations. This move would prompt high volatility in the market as
nobody is expecting such actions from the Fed, but eventually the monetary
policymaker will have the advantage while geopolitical factors could be blamed
for any negative consequences.
So, what
the Fed will choose to do next week is hard to say. Investors will definitely
wrestle with this issue until next Wednesday.
The technical
picture for the S&P 500 broad market index is rather negative as the index
is expected to decline to the 3950-4050 point area throughout next week. Whether
the outcome of the Fed’s meeting or the geopolitical
factors will have provide the market with the upper hand is really hard to
judge. Some aggressive short positions opened at 4310-4330 points could be on
hold.
The oil
market seesawed this week by the surge
of crude prices by 10% to $132 per barrel of Brent crude at the beginning of
the week and a plunge of 20% to $105 by Wednesday. Brent crude prices slightly
recovered by the end of the week to $110-120 per barrel. But this balance seems
to be extremely fragile. The rally may resume soon and no pumping efforts from the
United Arab Emirates or a deal from the U.S. and Iran or Venezuela could stop
that now.
Gold prices
rebounded from all-time highs at $2060-2070 per troy ounce back to $2020 and
then slid to $1980-1990 per ounce, preparing to dive deeper to the support
level at $1920-1930. Once this level is reached
we may expect gold prices to fall to $1840 or even to $1750-1760 per ounce. The
alternative scenario that may push gold prices up is the geopolitical tensions
over Taiwan.
EURUSD is
on the upside track targeting 1.12000-1.13000. After the European Central Bank
turned off the money tap the Euro touched 1.11000 and rolled back towards the
support at 1.08900-1.09200. Once these levels are reached long positions with
the potential targets at 1.10000-1.10200 will be interesting to consider.
GBPUSD is
within the downside pattern as all targets of the week were met at 1.31000. The
cable is within a potential turnaround area but have no strong support levels
in sight. Some aggressive long positions could be considered at 1.30000-1.30200
with a target at 1.31900-1.32000 by the end of next week.