Last week closed very alarming. Triple witching Friday made its trick sending the S&P 500 index down by 0.2% to 4450 points. This came in a very complex situation that may send stocks downside.
A possible government shutdown in September may curb the U.S. GDP by 0.6%. Rising crude prices may instigate inflation. All this could be amplified by political tensions in the United States ahead of presidential elections. In this situation the Federal Reserve (Fed) has to support markets with dovish rhetoric. Otherwise, the S&P 500 broad market index may slip below the support at 4400-4460, and may also form a downside formation with targets at 4100-4150 points and lower – at 3700-3800 points.
The Fed likely understands this, and may provide some support for the market for the index to bounce from the dangerous support level. This idea might be overshadowed by a tempting goal to stop crude prices to rise above $100 per barrel for a Brent crude. But Fed’s Chair Jerome Powell is a very prudent person and should avoid this risk. Besides, Fed’s efforts to push crude prices down may not be successful. Organization of Petroleum Exporting Countries and its allies known as OPEC+ may counteract these actions leading to a slowdown of the U.S. economy. Thus, the Fed should send rather neutral or even dovish signals.
The Bank of England (BoE) has little choice, but to hike its interest rates by 0.25 points amid still high inflation at 6.8% YoY. Bank of Japan (BoJ) officials disavowed its Governor Kazuo Ueda speculations about an imminent move away from ultra-loose policy. It would be better to wait for the Governor to provide more explanations on the matter.
Technically, the S&P 500 index upside formation is unchanged with a primary target at 4700-4800 points. The index has entered a period of a potential reversal, and may swing into correction if the support zone at 4400-4460 points would be passed. The upside scenario with targets at 4700-4800 is also possible if the index will climb above 4580-4600 points.
Brent crude prices have surged to $94.00 per barrel after a breakthrough of $83.00-85.00 per barrel. If prices would stay above $94 per barrel for a few days they may climb above $100 per barrel. The $95 per barrel threshold would allow prices to move up to $100.00-103.00 per barrel. The downside scenario may be activated it prices will return below $92.00 per barrel. Then they would dive to $82.00-84.00. If prices would fell below $74 per barrel a recession scenario with targets at $64-66 per barrel of Brent crude will be the option.
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 $1910-1930 per ounce. Prices are above this support keeping them safe from a technical correction. If prices will fall below it, it would be better to be prepared to open short positions.
The Greenback is forming a reversal pattern. A long trade with a small amount for GBPUSD from 1.24400-1.24500 with a target at 1.26200-1.26400 could be interesting to catch the reversal move. The EURUSD long trade is also interesting from 1.06200-1.06500 with a target at 1.0800-1.08200. The long trade in the AUDUSD from 0.63800-0.64000 with a target at 0.66500 and the stop-loss at 0.63200 is still open.