U.S. stock market again reconfirmed its strength with S&P 500 broad
market index above key resistance level at 4175 points, suggesting further
growth. But we should not be hasted ahead of important events this Wednesday
and Thursday.
On Wednesday two important events are going to happen: Federal Reserve
may provide a framework of exiting policy towards tighter monetary regulation;
U.S. President Joe Biden will testify in front of the Congress with a possible
new tax policy for corporates and wealthy individuals.
We have to take in account that Federal Reserve and Bank of Canada are
acting as a team, and we may expect the Fed would follow BoC after the letter
has slashed its bond buying program by a quarter last week. We should also keep
in mind the words of Fed’s chairman Jerome Powell who said last week that QE
would be reduced “well before” interest rate increase. So an intriguing
question may arise – are we at the moment of “well before” to start reducing
QE?
If this moment has come and the Fed would announce such a decrease,
markets would reverse into correction that may be amplified by Joe Biden’s
speech. Certainly, he should talk a lot about COVID-19 situation, about new
political and economic agenda. However, investors would wait for any words
about changes in tax policy after rumors that capital gains tax could be double
to 40% and after that a step back to 30%.
Besides, this week U.S. first quarter GDP figures would be published following
by earning report by “big four” tech giants Microsoft, Apple Facebook, Amazon
and Tesla as starting gun. All are expected to present strong first quarter
earnings results. However, some hitches might occur in operational results. The
pandemic has seriously amplified their results in 2020, and it might be
difficult to catch up with last year’s strong performance. We may recall as
Netflix failed to meet analysts’ expectations regarding the increase of its
subscribers number, and its shares plunged by 11% in a single day despite
excellent financial results. Similar difficulties may happen to Apple amid
global semiconductor’s and microchip deficit, and to Amazon as “stay at home”
regime is being eased for consumers and due to the additional spending to
comply to lockdown operation regime during the pandemic. So, we should treat strong
corporate earnings reports this week not as a fact, but as a high possibility.
All these events may produce high volatility to S&P 500 index on
Wednesday and Thursday. Technical pictures suggests a desperate fight for 4175
landmark level. If the bills would succeed moving the index value above 4200
points then a possibility of a rally to 4500 points would rise. In the other
scenario, the index may bounce from 4175 points and may slide below 4100 points
that would open the path towards 4040 and 3940 points.
Crude oil market has more bearish picture with the prime resistance at
$64.40 per Brent crude barrel that guards the path to $60.00 per barrel level.
If this prime resistance level would sustain we may expect prices to recover to
$65.80 and $66.80 per barrel, where sell position would be interesting to
consider. Traders should also monitor OPEC+ meeting that is expected this week.
We expect no surprises with OPEC+ to reconfirm its planned crude production
commitments in May-July. Negotiation between the U.S. and Iran over nuclear
deal are also on the table.
Gold prices may continue to rise if yield on the U.S. ten-year
Treasuries remain below 1.6%. It his ultimate condition would be met gold
prices may briefly jump even to a $1850 per troy ounce level.
The
Greenback has a moderate potential to decline further as EURUSD may extend its
gains to the resistance level at 1.21800 where investors may find excellent
sell opportunities with targets at 1.20500 and 1.19400.
The GBPUSD
is close to a support level at 1.38300. However, that does not mean the pair is
interesting to open buy positions. Quite the opposite, sell positions from
1.39400 or from 1.40700 are looking more justified. In case the Pound would
slid below 1.38300 sell orders would also be interesting to consider.
The
USDJPY has bounced from the important support level at 107.60. It would be
likely to wait for the Yen to return to the resistance at 109.00 or 110.00 to
resume selling of the pair.