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  • Weekly Focus: Inflation, Brainard, Banks’ Earnings Reports, ECB and Much More

Weekly Focus: Inflation, Brainard, Banks’ Earnings Reports, ECB and Much More

With Good Friday being at the end of this week, it is too short to host so many events which include inflation data from the United States, a statement from the Federal Reserve (Fed) Governor Lael Brainard, bank earnings reports for the Q1 2022, the European Central Bank’s (ECB) meeting, an expected hike of interest rates in New Zealand and Canada, and some other important macroeconomic data in the United Kingdom and the Eurozone. All this is going to happen within these three days before the celebration on Friday.

There will be too much data to compile an explicit logical understanding of the economic playing field. Thus, we may see excessive volatility in the markets without any particular direction. If this week will perform a similar paradigm on all markets is hard to say as the technical picture for stocks, commodities and currency markets differs. The S&P 500 broad market index has changed its pattern to the downside with a first target at 4100-4200 points by the beginning of May. However, a breakdown to 4400 points on Monday saw the benchmark being just a notch away from an aggressive downside pattern that may direct the index much deeper than 4100-4200 points, and this could happen very fast. To activate this scenario the S&P 500 index has to close on Wednesday below 4390 points. There are plenty of market drivers to push the index in either direction. The Consumer Price Index (CPI) for March may post a new 40-year record high. Fed Governor Lael Brainard must send a clear message to the market to tame inflation in the “fast and harsh” manner.

Bank’s corporate earnings reports may support the stock market on Wednesday, as Wall Street is full of optimism. However, this could not be enough as banks may suffer from rising labour costs. Expectations of interest rates hikes in New Zealand and Canada by 25 basis points and 50 basis points respectively may impact the prices of stocks in a negative manner. This could be very true amid expectations of further monetary tightening by the Fed within the next three weeks.

The ECB may curb a negative effect on stocks as it may continue with its loose monetary policy, however this would certainly not be enough to resume an upside trend for U.S. stocks. In this regard, wait and see tactics may be the best option by the end of Wednesday. If the S&P 500 index closes Wednesday below 4390 points than traders should be ready for a downside move to the 4100–4200-point range. If the opposite becomes true, then traders should wait for better sell options.

Brent crude prices are hoovering inside a support zone at $95-105 per barrel and may continue to do so by the middle of May. This scenario will not manifest if Russian oil is banned by all major European nations.

Gold prices are struggling to the upside despite unfavorable conditions. Gold prices rose to $1955 per troy ounce despite the strengthening U.S. Dollar and rising 10-year Treasury yields above 2.7%. However, this may signal a possible downside correction by the end of April. Short positions, opened at $1950-1960 per ounce with a target at $1840 per ounce are intact.

The Greenback is preparing for a breakthrough. EURUSD is within an aggressive downside pattern, preparing to face record inflation data in the U.S. and for the outcome of ECB statements. The primary scenario suggests the Euro would slide to the area of 1.07000-1.08000 by the middle of the week. In case it fails to do so, the EURUSD may rebound to 1.09500-1.09700, where it would be interesting to consider short positions. Aggressive short trades, opened at 1.10450 could be maintained considering a possible plunge to the 1.07000 and below.

GBPUSD is on the downside trajectory to the 1.28000-1.28500 area. Short positions that were opened at 1.31200-1.31800 could be partially kept until Wednesday as the pair signals it may continue below a strong support at the 1.30300-1.30400 area. If the pair slides below 1.29800, the rest of short positons could be left to seek a target price at the 1.29000-1.29500 area.