The parade
of central banks across the world is over. Major central banks have
disappointed investors as both the Federal Reserve (Fed) and the European
Central Bank (ECB) have slowed down interest rate hikes by increasing them by
50 basis points instead of the previous 75 basis points. But they both made it
clear that the terminal interest rate level would be higher and would hold
longer than investors previously expected.
Central
banks are scheduled to have their next meetings in early February 2023. So,
monetary policymakers on both side of the Atlantic have flagged stocks indexes
to go down in the nearest seven weeks. This downside scenario became even more
realistic after the release of disappointing retail sales data in the United
States showed a fall of 0.6% month-on-month.
A large
block of macroeconomic data this Friday, including inflation in the Eurozone
and business activity (PMI) in the U.S. could hardly improve negative
sentiment. However, any further contraction of PMIs may accelerate the decline
of the stock market.
These
fundamental considerations have been confirmed by the technical picture as the
S&P 500 broad market index has moved to the aggressive downside formation
with targets at 3700-3800 for the end of this week. If the stock market
benchmark fails to recover to 4030-4050 this Friday, which is highly unlikely,
it could plummet to 3400-3500 points next week. So, if anybody has expected the
alarm bell to sound here it is. The final downside targets are very deep at
2000-2200 points.
The recent
correction in the oil market where Brent crude prices recovered to $83 per
barrel, confirmed the downside trend. Russia has still not responded to the price
cap on seaborne oil at $60 per barrel but is rumored to do so soon. Meanwhile,
recession fears are pressing down crude prices with minor chances for an upside
recovery. Brent crude prices are hoovering slightly above the resistance at
$78-80 per barrel, but that is seen to be temporary, and would eventually lead
to a decline towards the nearest support at $68-70 per barrel. Extreme downside
targets are intact at $60-70 per barrel.
Gold prices
are charting an upside formation with targets at $2000-2100 per troy ounce by
the middle of 2023. Prices may move even faster if technical targets at
$1800-1805 per ounce are reached next week. This would activate an aggressive
scenario with targets at $2050-2150 by the middle of February.
The money
market continues to experience elevated volatility that prevents the use of
short-term signals. So, it is better to place orders that are attached to
longer perspectives. Short trades for AUDUSD were opened at 0.68000-0.68500,
and for EURUSD at 1.05000-1.05500. Downside targets for these trades are at
5000 points below opening prices. The same applies to stop-loss orders that are
5000 points above order prices.