Positive
sentiment in the markets is seen to be fading after the S&P 500 broad
market index reached its highs last seen on September 14 at 4041 points. The
end of the week overshadowed this optimism as the index dived below opening
levels on Monday, testing the support level at 3900 points.
This week
markets were supported by lower than-expected inflation numbers in the United
States (7.7% in October vs 8.0% expected) that were released a week ago and the
Producer Price Index (PPI) that came out to be 8.0% compared to 8.3% in
September. Overall, the general positive market sentiment was clouded by U.S. retail
sales that rose in October by 1.3% beating the forecast of 1.0%. This can be
seen as clear guidance for the Federal Reserve (Fed) to continue monetary
tightening without significant fears of hampering domestic demand. Fed
officials have confirmed that the expectations of markets towards a lower
interest hike trajectory are vastly overvalued.
Other
events this week had a rather neutral effect on markets. The G20 summit flagged
de-escalation efforts, as shown by the overall presence of the officials of the
world’s 20 leading nations. However,
considering the words of the leaders themselves, especially those of US President
Joe Biden and Chinese leader Xi Jinping,
it is clear that the leaders have agreed upon certain guidelines to be
followed in order to combat tension rather
than just allowing tensions to subside.
The British
budget is seen to include higher taxes to finance its deficit, which is very
positive for the market. This may buy some time for the Bank of England (BoE)
to take a breath from hiking interest rates aggressively. But the inflation rate
for October in the U.K. is at 11.1% and this may derail these efforts.
The technical
picture for the S&P 500 index looks complicated as the index continues to
run within the upside formation with targets at 4100-4200 points by the middle
of December. However, many factors are flagging rather a return to a decline.
The nearest support level is at 3880-3900 points and the nearest resistance is
at 3980-4000 points. So, the distance between these levels is the most likely
scenario for the index now. Downside targets are far below at 2000-2200 points.
Brent crude
prices failed to settle above $96 per barrel and slipped to the $90 support
level. This makes testing $85-87 per barrel the basic scenario.
Gold prices
have ran out of steam reaching the peak of $1786 per troy ounce. Prices rolled
back to $1760 per ounce and are seen to be ending this week close to this
level. Without any upside drivers next week’s prices may drop to the $1710
support level, and in case of a breakthrough they may go even deeper to
$1600-1650 per ounce.
The money
market continues to experience elevated volatility that prevents the use of
short-term signals. So, it is better to place orders considering longer
perspectives. Short trades for AUDUSD that were opened at 0.63700-0.64200 are
still on the go, and may be terminated when the pair reaches the 0.59000 area.