The U.S.
stock market is trying to get as high as possible ahead of the Federal Reserve
(Fed) meeting next week, where another 75 basis points interest hike could be
decided. U.S. President Joe Biden tested positive for COVID-19 and is said to
be experiencing mild symptoms while taking Paxlovid, a pill that is prescribed to
patients with high risk of hospitalisation or death.
Biden’s
sickness bears a great risk if he develops severe symptoms that may easily
emerge considering the age of the President. This could be a good chance for
elevated political tensions, namely between China and Taiwan. So, these kinds
of issues should be clearly monitored. Investors should be prepared for the
worst-case scenario.
The
European Central Bank (ECB) unexpectedly made a wise decision to raise its
interest rates by 50 basis points instead of the promised 25 points. This is
clearly a bold step towards fighting record 8.6% inflation. Thus, an 11-year
long test of negative interest rates is officially over. The ECB also announced
an unlimited Transmission Protection Instrument (TPI) program that is designed
to level up government bonds yields, especially for the South European nations.
The rise of the interest rate is likely to greatly raise borrowing costs for
countries like Spain, Portugal, and Italy. For such countries the European
monetary watchdog promised to target the yields curve. The ECB hopes that the
new instrument will never be activated. But these hopes could be dashed amid a curling
cyclical crisis.
Along with
the ECB’s decisions, new risks of banks pumping more money into the Eurozone’s
economy were also delivered, meaning that inflation may be pushed even higher,
as it is up to the ECB to decide which country’s debt needs to be supported and
how much of it should be loaded to the regulator’s balance. The Euro lost
ground on this news, but is unlikely to drop significantly to the U.S. Dollar
as the latter has much more signals to decline.
The S&P
500 broad market index reached a resistance level at 3920-3930 points and
continued to climb, changing its formation to the upside with a primary target
at 4100-4200 points. Next week is looking positive for the index from a technical
point of view. Corporate earnings reports from Microsoft, Google-parent
Alphabet, Apple, Amazon, and Meta may contribute to the climb next week.
Crude
prices were slightly up this week rolling back to $103-104 per barrel of Brent
crude by the end of it. No clear occasions for crude prices to rise are currently
seen. On the other hand, no reasons to decline are seen either. The data for
crude reserves in the U.S. is flagging towards a further rise, but it has no
major importance at this point. Thus, an upside scenario with Brent crude
prices to rise towards primary target at $135-145 per barrel and extreme peaks
at $160-170 is intact.
Gold prices
have likely found a bottom in July as they have dropped to $1680 per troy ounce
and recovered latter to $1720. Thus, the rest of the short positions that were
opened at $1860-1880 should be closed. Long-term buy positions are not seen wise
to be opened at the moment as gold prices may resume their decline at some
point. So, it would be better to wait before opening new short positions.
The
Greenback is weakening as the Euro gained to 1.02500, but rolled back to
1.01500 by the end of the week. The Euro was supported by the resuming gas
supplies via North Stream 1 pipeline that was closed for its 10-day annual
maintenance. However, a lot of Euro bulls have emerged in the market after the ECB
raised interest rates. In such circumstances it would be difficult for the
single European currency to continue to the upside. It would be better to wait
for further developments to unfold. If the EURUSD closes this week above
1.00900, new buy opportunities could emerge next week.
GBPUSD
continues towards the upside and is looking to close this week above 1.18900.
If this attempt is successful it may be interesting to consider buy operations
next week with a target at 1.21500-1.22500.