I still believe that signs of exhaustion will be sold into, although if you are trying to take advantage of the US dollar strength against major currencies.
Gold markets spent the early part of the week trying to rally but have pulled back from the 200-Weekly EMA, as well as the crucial $1680 level, an area that previously had been very important. The fact that we are closing toward the bottom of the candlestick suggests that we may very well be getting ready to test the $1620 level underneath, which is where we formed a short-term double bottom. If we break through there, and I do think we will eventually, it is very likely that gold will plummet down to the $1500 level. Keep an eye on that Federal Reserve press conference late Wednesday for clues.
Bitcoin has had a slightly positive week, but quite frankly it is still flat on its back. I do not believe that Bitcoin has suddenly found a bottom, and it’s likely that if the Federal Reserve remains hawkish, perhaps even in that press conference on Wednesday, Bitcoin will get eviscerated. The $18,000 level is a large, round, psychologically significant figure, and an area where we’ve seen a lot of support previously. If that gets violated, Bitcoin goes much lower. On the other hand, rallies all the way up to the $25,000 level only continue the consolidation that we had been in.
The EUR/USD has rallied rather significantly during the trading week to pierce the parity level. The European Central Bank had raised interest rates to the 2.00% level, as anticipated. However, it looks as if the market is less than impressed, because after those gains, the very next day we started to see selling pressure and then broke below parity. The resulting candlestick is a bit of a shooting star, and it looks like we are going to continue to drift lower, especially if the Fed remains hawkish.
The GBP/USD has rallied most of the week, slamming into a major trendline. The 1.16 level is an area where we’ve seen some noise previously, so it will be worth paying attention to. Keep in mind that the British pound had been massively oversold heading into this week, so a continuation of the “bear market rally” me quite a bit of sense. This is especially true after the British change prime ministers, and now look as if they are going to walk back that disastrous budget. Nonetheless, the United Kingdom still has a hard winter ahead of it, so I still believe that signs of exhaustion will be sold into, although if you are trying to take advantage of the US dollar strength against major currencies, you will probably have an easier time doing it against the Euro or the Yen.
The S&P 500 E-mini contract rallied most of the week, as we have approached the 3900 level. At this point, the market will be sitting around and waiting to see what the Federal Reserve has to say on Wednesday, and it looks like everybody is trying to get ahead of Jerome how either suggesting that the Federal Reserve is going to slow down rate hikes, or perhaps even hike rates by only 50 basis points instead of the expected 75. There is a very high probability that Jerome Powell will disappoint the bullish. I suspect by the end of the week, the sellers will come back in, mainly because they have extrapolated the Reserve Bank of Australia and the Bank of Canada raising less than anticipated as a sign of what the Federal Reserve is going to do. Having said that, they completely ignored the ECB and the fact that they did raise as much as anticipated.
WTI Crude Oil
The West Texas Intermediate Crude Oil market rally during the week, albeit from a very oversold condition. Recently, we had seen a surge higher, perhaps due to the OPEC members cutting 2 million barrels per day, but it still looks to me like the markets got some questions asked. If we can break above the highs of 2 weeks ago, then it’s likely this market is much higher, perhaps trying to reach $120 before it’s all said and done. Obviously, the $100 level between here and there would be a fight as well, but a breakout to the upside could be a resumption of the uptrend. On the other hand, if we were to break down below the $80 level, that could send oil much lower.
The Frankfurt exchange initially pulled back a bit during the trading week, but then turned around to show signs of strength, just as most other stock markets did. At this point, traders are starting to focus on the fact that central banks may slow the rate of interest rate hikes, but quite frankly that’s not a good sign, because it shows that we still have plenty of economic headwinds out there. Yes, it could provide a short-term boost for stocks, but over the longer term, you are still going to see a lot of negative pressure. I anticipate that the DAX may be rather choppy this coming week.
The US dollar has gone back and forth during the course of the trading week, as the Bank of Canada raised interest rates a little less than anticipated. However, people are trying to extrapolate that because the Canadians did this, clearly the Americans will raise less than anticipated. Regardless, when you look at the weekly chart, I think this is more about the market working off a lot of froth, as we had shot straight up in the air. It appears that we continue to bounce around between the 1.35 level in the 1.40 level. I think this week will probably be more of the same, because the Canadian dollar may be insulated by the oil markets.