This week
is the most tense period of this summer. It has started with business activity
indicators’ publication. PMI’s in the Eurozone and in the United Kingdom are
down substantially in July, both in manufacturing and services sectors. The PMIs
in the U.S. are likely to confirm this trend.
Investors
will be monitoring Big Tech earnings reports this week. Microsoft (MSFT) and Alphabet
(GOOGL) will open the season with Meta (META) and Amazon (AMZN) to join it
latter during the week. U.S. Big tech companies are trading at the P/E forward
ratio at 30, which is twice as much as other S&P 500 index listed firms.
So, a correction for their high prices is needed.
The most
important show of the week is the meetings of two major central banks. The
Federal Reserve (Fed) is likely to raise its interest rates by 0.25 percentage
points on Wednesday, which is priced in already. The same is related to the
European Central Bank (ECB) that is expected to raise its rates by the same
value as well. The most intriguing would be the rhetoric of the regulators
regarding their future monetary actions. It would be logical if the Fed would
keep its hawkish rhetoric intact to have an opportunity for another rates kike
in September. The ECB, instead, could turn less hawkish referring to the
incoming data in their monetary policy release.
The overall
sentiment of the week is seen rather negative as the U.S. GDP is forecasted down
to 1.7% QoQ from the first estimate of 2.0% QoQ for the Q2 2023. The Personal Consumption
Expenditure Index (PCE), which is the Fed’s favorite inflation gauge, is expected
to slow down to 3.1% YoY in June from 3.8% in May. These indicators combined
together are flagging a slowdown in the global economy. Markets, however, are
exercising a euphoria that may continue throughout the mid-August. Overall, all
this huge wave of information the investors would face this week would be hard
to digest. So, a new directional trend is unlikely to be established this week.
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 is trading near the
resistance at 4540-4560 points. If it will be passed the index will be heading
towards the ultimate upside target at 4640-4660 points. The nearest support is
located at 4440-4460 points. The downside signal has not formed yet, while
there are more than enough incentives for this signal to emerge.
Brent crude
prices passed the resistance at $76-78 per barrel after Organisation for
Petroleum Exporting Countries (OPEC) and its allies demonstrated commitment to
continue with production cuts. The former resistance became a support, after it
was successfully tested. Prices are moving close to $81.80-82.00 per barrel,
and may move further up towards $86-88 per barrel it first level would be
broken through. In the alternative scenario prices may slip below $76 per
barrel initiating a recession scenario with targets at $67-69 per barrel of
Brent crude.
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 chances for a correction towards $1820-1850 per ounce are still
high.
The
Greenback has recovered most of its losses, and is still looking solid compared
to its major peers. Thus, even mid-term long positions for the U.S. Dollar are
seen not to be appropriate. It would be better to wait for a decline of the
EURUSD below 1.06000 to seek out sell opportunities for the Greenback.
Two
positions were opened for July. First, is a short position for the EURUSD at
1.08900-1.09200 with the take profit and stop loss both set at 5000 points from
the opening price. A long trade for the AUDUSD was opened from 0.66400-0.66600
with the same size of the stop loss and take profit orders as for the EURUSD.
Two operations balance each other and should be kept to mitigate risks.
Another long
trade was opened with GBPUSD at 1.28500-1.28700 targeting 1.30500. This trade
should be closed before Fed meeting results would be announced on Wednesday.