The U.S.
stock market has performed its best week so far this year, adding 1.8% to the S&P
500 broad market index that rose to 4050 points. The rise was recorded despite the
accelerated Price Managers’ Index (PMI) to 50.6 points during February from
46.6 points in the previous month, confirming persistent high inflation.
There is no
logic behind this optimism besides Rafael Bostic words, as he is expecting the
Federal Reserve (Fed) to put the interest rate hike cycle on pause this summer.
The market is seen to pounce on any reason to continue up even if it is an
illusion. The situation became even more amusing after San Francisco Fed
President, Mary Daly - who is a non-voting member of Federal Open Market
Committee (FOMC) - said Fed policymakers will need to raise interest rates
higher and keep them there longer to tackle higher prices. However, the stock
market is simply ignoring any downside warnings. The S&P 500 index
continues to move up on the lower-than-expected growth of China’s GDP of 5%
that would lower the inflation threat for the United States.
It is
really hard to tell how long this mental shell game will last. Technically, we
may expect the stock market to drop within two weeks. But the Fed is a very
experienced “blackleg” that succeed in moving the decline of stock indexes from
December 2022 to March 2023. So, it is better to not underestimate the power of
its manipulation experience even in an unpromising situation.
Fed’s Chair,
Jerome Powell, will testify in the U.S. Congress on Tuesday and Wednesday and
is likely to make a surprise note while institutional market players believe he
should have a reasonably hawkish rhetoric considering the existing economic
situation.
Labour market data in
the U.S. will be published this Friday. It is quite overheated as the Fed has
failed to cool it down. Eventually, Mr. Powell may burn his “soft landing”
promises over it to make decisive remarks to lower inflation perspectives.
Technically,
the S&P 500 index continues to move within a downside formation with
targets at 3650-3750 points. The index is slightly above the strong resistance
level of 4020-4040 points. It has a resistance level at 4100-4120 points that may
move the formation to the upside once crossed. It is better not to look down as
the nearest support level is at 3970-3990. Everything below this would lead to a
steep decline towards 3650-3750 points.
The oil
market continues to hover in the middle of the wide trading range of $79-89 per
barrel of the Brent crude benchmark. This time the price is ready to
breakthrough and recession logic suggests that prices are likely to go down.
There is a lot of news that is trying to push prices down, like lower-than
expected GDP growth in China, higher crude release prices of Saudi Arabia, and
some other news that had minor effects on prices. Something big should happen
to push the price in either direction. Recession logic suggests that prices are
likely to go down despite traders earlier expectations that Brent prices may
jump to $100 per barrel in the second half of 2023.
Gold prices
are moving inside the mid-term, upside formation with targets at $2000-2100 per
troy ounce by the middle of 2023. Prices have failed to dive below the support
level at $1790-1810 per ounce, and are recovering to $1840-1850 per ounce.
Still, the support level at $1790-1810 per ounce should be monitored. If prices
pass this support level and continue down, then the scenario of a possible
change of trend to the downside may become a reality. In this case prices may
rewrite last year’s lows of $1600-1650 per ounce.
The U.S.
Dollar may continue strengthening. Considering the high volatility in the
market, it is better to place orders attached to longer perspectives. 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. The decline of the EURUSD to
1.05000-1.05500 could be used to close half of the trade, and the other half
should be continued until the targets of 1.03000-1.03500 are met.