The
nomination of the new Federal Reserve (Fed) Chairman came as no surprise.
Jerome Powell won the race for Chair. U.S. President Joe Biden announced his
decision on Monday night. The second nominee, Lael Brainard, was offered the
job of Powell’s Deputy.
The Senate will
have no objections against approving Powell, who is a Republican and who would certainly
be supported by his fellow party members. So, the approval of Mr. Powell for a
new term could be considered as done.
The
market’s negative reaction to Powell’s nomination is expected. So, it would be
better to make his reappointment either on Tuesday night or on Wednesday to
leave the market little time to react negatively before the Thanksgiving Day on
Thursday. Now we see that after reaching all-time high at 4743 points, the
S&P broad market index quickly rolled back towards the support at 4660
points. Moreover, the market has two more days to continue the decline.
The inconvenient
for markets decision was followed by Mr.
Powell’s words, promising that he will
battle inflation. “We use our tools both to support the economy and a strong
labor market and to prevent higher inflation from becoming entrenched,” Powell
said. Treasuries reacted severely on his words as 10-year Treasuries’ yields
rose to 1.63% from 1.56% along with sell-offs in the stock market and market
consensus that interest rates would be hiked three times next year.
At this point, nothing
seems to be on the positive side for the stock market as personal consumer
spending data that will be released on Wednesday is likely to amplify inflation
fears and provide more reasons for the Fed to counteract fast. So, seemingly
investors should be prepared for the S&P 500 index to break through the landmark
of 4660 points over the coming days and hope the decline will not be too much
amid low trading activity ahead of the holidays. The next support level for the
index is at 4540 points.
If the pressure continues
the existing upward pattern in the market would be replaced by a downward
formation that would undermine the very possibility of the Santa rally this
year. Whether this downturn will be used
for opening short positions is a complicated question as the S&P 500 index
may return to the upside next week. Anyway, investors are not recommended to
keep their positions open over the long weekend.
The oil market has its
own drama as OPEC+ shows its discontent after Brent crude prices fell below $80
per barrel. The OPEC+ is rumoured to stop lifting oil production quotas in the
United States and other large oil impairing countries would continue to
intervene in the market. And this is highly likely as the next target for Brent
prices is at $72.00-73.00 per barrel. On the one hand, there could be risks of falling Brent prices after a
breakthrough of $78, but on the other hand, the alternative scenario is for
prices to remain within the $78.00-82.00 range. So, the best tactics to trade
crude is to open positions close to the margins of this range.
Gold prices have
plunged below key resistance level at $1840 per troy ounce after Powell’s
renomination and rising yield on the debt market. Gold prices easily went down
to $1800 landmark and may plunge even further by the end of 2021 as no major
support levels could stop it before $1750 per ounce. The current downside
movement points to $1550-1650 as a final target.
The EURUSD continues
to drop. The minimum of this drop could be located at 1.11000-1.11500. This
week the drop to this level may continue amid monetary tightening expectations
from the Fed and a continued loose monetary policy by the European Central bank,
which is amplified by the COVID-19 new wave fears.
The GBPUSD has failed
to reverse to the upside and is likely to continue to fall. For the next two
weeks the range of 1.32500.1.33500 is the likely area to be achieved, while by
the end of 2021 the Pound may drop to 1.29500-1.30500.