Debt
ceiling negotiations continue to trouble investors. Although Republicans and
Democrats have $70 billion in spending to discuss, it could be considered
rather positive news compared to $4.5 trillion cuts demanded by the GOP side at
the start of the talks. It may also mean that the deal is very close and may be
announced over the weekend.
This may
sound like very good news, but investors still consider a technical default as a
possible. U.S. Treasuries yield continue to rise. One month bond yield surged
above 6.0%, which is the record for the last 20 years. Ten-year bond yields
jumped to 3.8%, the highest since March 2023. The rise of the short term bonds’
yields elevated risks of a technical default, while ballooning yields of
long-term debt point to a rising possibility of interest rate hikes by the
Federal Reserve (Fed). The Federal Open Market Committee (FOMC) Minutes that
were released this week, have no univocal guidance on whether the interest rate
hike cycle is over or could be continued.
Macroeconomic
data released this week also indicates that the American economy is stronger
than expected. Thus, the probability of an interest rate hike by 0.25
percentage points jumped to 36.6% from last week’s 20%.
Technically,
the S&P 500 index has an upside formation with targets at 4500-4600 points.
This formation will expire at the end of this week and will be replaced by a
less aggressive one with targets at 4230-4330 points. The U-turn possibility
when the index crossed the support at 4120-4140 points to the downside will also
be removed this week.
The oil
market is struggling to avoid prices plummeting towards $70 per barrel of Brent
crude. However, the recession scenario chances are high in the oil market as
Brent crude prices continue to tumble towards $40-60 per barrel, which is the
recession target. Prices are trying to move to the $67.00-69.00 level per
barrel. Once they breakthrough this level they may accelerate further down.
However, this will largely depend on the efforts of the Organisation of the
Petroleum Exporting Countries and its allies, known as OPEC+, to stabilise
prices. The OPEC+ will meet next week.
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
and bullion prices dropped to $1940. Short positions were opened after prices
tested the $1970-1980 former support level with targets at $1880-1900 per
ounce.
The
Greenback is regaining its upside momentum amid positive developments in debt
ceiling talks and positive economic data that displays the strength of the
American economy. An expected deficit of Dollar liquidity is also contributing
to a rising Greenback. So, EURUSD short trades will be intact for some more
time. Thus, short trades for EURUSD opened at 1.06700-1.07200 should be closed
at the 1.06000-1.06500 area.