The S&P 500 broad market index end the week on a negative territory despite some optimism in the beginning of it. The index lost overall around 0.2% to 4460 points, but it is likely that it would continue down amid overall nervousness in the market.
The inflation in July in the United States that was released this week had minor effect on stocks despite rising headline inflation and slowing down core inflation that is calculated without volatile food and energy prices. All number were almost in line with expectations without major surprises. The firs reaction on the news were a declining Dollar and rising U.S. debt yields. But the situation reversed later with a jump in debt yields and rising Greenback. This reversal was prompted by low demand on U.S. debt on this week’s auction.
This situation is unlikely to last long, as U.S. financial authorities would convince banks and other financial institutions to increase their debt holdings. Thus, the market may return to the downside idea for stocks, as well as for U.S. Dollar. Debt yield curve inversion continues to support this idea.
Producer Price Indexes (PPI) that were released on August 11 confirmed elevated prices pressure, as headline PPI accelerated to 0.8% YoY in July compared to 0.7% consensus. Core PPI remained at 2.4%, following the same reading in June. What if more interesting is that both headline PPI and Core PPI on monthly basis were slightly above consensus expectations and June figures. This added further downside pressure on stocks.
Technically, the S&P 500 index continues to have an upside formation with targets at 4250-4350 points, that have already been met. The benchmark has now the support at 4390-4410, and the resistance – at 4480-4500 points. The downside signal has been finally shaped with a short trade initiated at 4520 points.
Brent crude prices continues to assault the resistance at $86.00-88.00 per barrel. The support is located at $74-76 per barrel. This downside could be reached if prices will dive below $85 per barrel. If prices would soar above $88 the rally to $95 per barrel will become a primary scenario. If prices would fell below $74 per barrel a recession scenario with targets at $67-69 per barrel of Brent crude will be initiated.
Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. But, the situation has changed dramatically as the important support level of $1980-2000 per ounce was smashed. The nearest support is set at $1900-1920 per ounce. However, the similar scenario of August 2011 signals that this support will be very hard to breakthrough in the coming weeks.
The Greenback is recovering unexpectedly, still looking solid compared to its major peers. A sharp correction of the American currency could be expected in August. If such a correction would emerge, good buy opportunities for the Dollar should appear. But before then, a risky long trade with a small amount is seen for GBPUSD from 1.27200-1.27400 with a target at 1.29400-1.29600, and a stop-loss at 1.26000. The long trade in the AUDUSD from 0.65100-0.65300 with a target at 0.66500 is looking promising. The stop-loss for this trade could be put at 0.64800.
If these trades will be successful, a further weakening of the Greenback could be expected. It would be better to wait for a decline of the EURUSD below 1.05000 to seek out sell opportunities for the Greenback in this regard.