Most of the
large institutional investors are returning to the market this week after long
holidays and after last week’s extraordinary volatility. Despite high
volatility initiated by Non-Farm Payrolls data for December 2022, no major
changes were seen in the market in terms of stock indices. However, the upside
move of the indexes may reflect investors’ hopes for softer interest rate hikes
by the Federal Reserve (Fed).
This seems
to be a futile discussion as in December the Fed already revealed the criteria
it will use to track the economy and its
intentions for monetary policy developments. Slowing down average wages and a tense
labour market in the United States, together with lower inflation expectations,
have suddenly led to an unprecedented low unemployment rate of 3.5% vs 3.6% in
November. It is not yet clear why December was such a unique month, as high
employment should have led to rising wages and inflation as elevated business
activity over the Christmas period forced firms to attract new employees. So,
investors should wait for Q4 2022 inflation and GDP data in the United States
to get a clear picture of the labour market.
Taking all
this into consideration the most adequate suggestion considering the recent
market developments would be an exit strategy setup for large investors. So, a
sudden upside spike of the stock indexes above the resistance at 3890 points
may be considered as rather false and temporary. There are numerous downside signals
for the S&P 500 index and current “optimism” could be a classic trap for
retail investors who may consider the current situation as a good buy
opportunity. Such a bullish trap usually emerges before a large slump in the
stock market.
A speech
from Fed’s Chief Jerome Powell and the release of inflation data this week may
become a turning point for the markets. Powell is thought to reaffirm the Fed’s
tightening stance for 2023 and is likely to do so amid a strong labour market
and still high inflation. Nevertheless, this will become clear by the end of
the week when all signals are received, and the first Q4 2022 corporate
earnings report is released by the banking sector. There are no comforting
forecasts for these reports.
Technically
the S&P 500 broad market index is moving inside a negative formation with
primary targets met at 3650-3750 points. The nearest resistance is located at
3930-3940 points, and the support is at 3840-3860 points. It is likely the
index will remain in this range this week.
Nothing new
has been seen in the oil market so far. The Russian ban of oil exports to
“unfriendly countries” that support the oil price cap set by the European Union
will be put into force in February. Recession fears have calmed down somewhat.
Prices for Brent crude also retreated to $78-80 per barrel. Brent crude prices
over $78-80 per barrel are seen to be a temporary departure that could end a
new selloff wave to the nearest support at $68-70 per barrel. The lowest
targets are currently seen at $60-70 per barrel.
Gold prices
are surprising as they continue to rally without any breaks. If prices roll
back to $1700-1720 per troy ounce, a sustainable upward movement will be
resumed. Prices have reached the resistance level at $1880-1900 per ounce and
further direction is highly uncertain at the moment. A stretched rally over the
last couple of weeks in gold prices may signal either further upside or a
reversal on high volatility with equal chances.
The money
market has been divided. It continues to experience elevated volatility that
prevents the use of short-term signals. So, it is better to place orders that
are attached to longer perspectives. But now the U.S. Dollar is seen to be weaker
against some currencies and stronger towards others like the Euro. Whether or
not we will see the Dollar moving in different directions against a basket of other
currencies remains to be seen in January. Nonetheless, short trades for EURUSD
opened at 1.06700-1.07200 with a downside target at 5000 points below the
opening level and the same 5000 points for a stop-loss order should be
considered very attractive this January.