Investors were worried about whether the Federal Reserve could control the soaring inflation without derailing the economy.
(All data taken from MT4 VT Markets)
As US stocks edge on the brink of a bear market, investors will look at Wednesday’s Federal Reserve meeting minutes for additional insights into the central bank’s response to increasing inflation.
US Federal Chair Jerome Powell is sure that the central bank can achieve a “soft landing”, but Wall Street is not as confident. Since March, the Fed has already raised interest rates by 75 basis points, and markets are bracing for more rate hikes of 50 basis points in June and July.
Fed Chair Powell has pledged to raise rates as high as necessary to combat inflation. The minutes will reveal how persistent policymakers anticipate inflation to remain and whether the economy is robust enough to withstand a significantly tighter monetary policy.
Investors will look at Wednesday’s Fed minutes for hints as to whether the US central bank will be able to contain the most aggressive inflation in four decades without triggering a recession.
The focus will be on retail earnings after last week’s poor reports from big retailers shook markets already jittery over inflation concerns, increasing interest rates, geopolitical instability stemming from the conflict in Ukraine, and the possibility of a recession.
Walmart (WMT), the largest retailer in the United States, indicated that while shop traffic remained solid, high inflation has begun to impair the spending power of US consumers.
The US stock market is on the verge of entering a bear market, which is a decline of at least 20% from the closing high. The S&P 500 closed Friday 19% lower than its record closing high on January 3, while the Nasdaq declined more than a quarter from its peak in November 2021.
Concerns about soaring prices, a hawkish Fed, and the outlook for economic growth have weighed in on the markets. The war in Ukraine has contributed to the decline through increases in oil and other commodity prices.
On Friday, the United States will disclose the data for April on personal income and spending. The report will also include the Fed’s main inflation gauge, the core PCE price index. Economists anticipate the information will reveal that expenditure will remain robust despite rising inflation last month.
This week, the Eurozone will post PMI statistics that will be widely watched. Eurozone PMI data was upside in April as the reopening of businesses boosted services following the Omicron wave. This month’s data will shed more light on how consumers will continue to spend on services despite price increases.
The USD Index (USDX) declined last week after failing to reach our resistance level of 105.18. USDX fell through our support areas at 103.64 and 103.95.
This week, we can see the potential for USDX to move slightly flat, considering there will be Federal Open Market Committee Meeting Minutes. Resistance is in the area of 103.64 and 103.95, while the weekly support is at 102.36.
In the H4 timeframe, the closest support level is 102.46.
Resistance: 103.64, 103.95
Support: 102.36, 102.46
Gold is trying to approach our support level at $1782 but is back up after USDX weakened last week.
This week, the potential for a purple move is between $1831 and $1854, with a break of the immediate resistance at $1877.
Potential support is at $1760 for the weekly timeframe at its lower level.
As for the H4 level, there is closer support at the $1801 level.
Resistance: $1854, $1877
Support: $1831, $1801, $1760