The S&P
500 broad market index failed to move into positive territory last week while
accumulating an overall weekly decline of
0.7%, which took it close to 3970 points. Investors are still hoping the
Federal Reserve (Fed) may ease it monetary tightening stance at its next
meeting on February 1.
The way in
which the index is acting is not surprising as investors’ nerves are extremely
taut ahead of the Fed’s meeting and they are reacting according to anyway the
rumour wind blows. The index was seen to be slightly recovering at the
beginning of the week by 0.2%, close to 3970 points. However, any negative news
may easily push the index back down.
This week
investors will be monitoring European Central Bank’s President Christine
Lagarde’s testimonies on Monday, Tuesday, and Friday. It seems that she will
continue with her hawkish rhetoric despite the changing market situation. It
would be better at this point for her to ease pressure on the market and tone
down the anti-inflation rhetoric to avoid a sharp U-Turn in the monetary policy
in the future.
The first
estimate for U.S. Q4 2022 Gross Domestic Product (GDP), that will be published
this week, is also of great significance. Forecasts are quite optimistic as
Wall Street expects GDP to slow down to 2.6% from 3.2% in the third quarter.
Market reaction, however, could move in either direction. So, it would be
better to wait for the data to be published on Thursday to assess the debt
market’s reaction in the United States.
The third
important issue that could emerge this week is the reaction of the U.S.
Congress to the letter of the finance ministry, which mainly focuses on the
debt ceiling of the U.S. Any response from Democrats or Republicans about the
failure of a compromise to set a new debt ceiling will immediately lead to a
sell-off in the stock market, and a rise of the Dollar.
Technically,
the S&P 500 index is within the upside formation with the primary target at
4100-4200 points. This being said it has now entered the reversal opportunity
window that would be open until the Fed’s meeting next week. The index is close
to the resistance at 3950-3970 points which may create a battlefield. If the
resistance is broken to the upside, we may expect it to move further up towards
the designated target. Otherwise, the index will fell to 3870-3890 points, and
may continue down to the secondary target at 3820-3840 points with a change of
the formation to the downside.
Brent crude
prices continue to attack the resistance at $87-89 per barrel. The weakening
U.S. economy and the Lunar New Year in China may harm these efforts and cause
prices to roll back to the support level at $77-79 per barrel. In case this
base scenario does succeed, prices may continue down to $68-70 per barrel.
Gold prices
are moving inside the mid-term upside formation, with targets at $2000-2100 per
troy ounce by the middle of 2023. Prices have largely exceeded the upper margin
of $1880-1900 per ounce, hovering around $1930 per ounce. Prices are expected
to face more geopolitical tensions and be effected by the battle over the new U.S.
debt ceiling level, making the outlook for future price movements quite
uncertain. Odd price growth over the last week may suggest a further price
rally to $1970-1990 per ounce without any stopovers, but also signal a possible
swift change of a trend to the downside during elevated volatility to rewrite
last year’s lows.
The money
market is ready for the strengthening of the U.S. Dollar. Considering the
potential of high volatility in the market, strengthening of the Greenback may
be very strong, especially if it will be accompanied by the tumbling stock
market. It is better to place orders that are attached to longer perspectives.
Short trades for EURUSD opened at 1.06700-1.07200, with a downside target at
5000 points below the opening level and the same 5000 points for a stop-loss
order, should be considered very attractive this January.