All major U.S. stock market indexes extended their advance last week following a slowdown in inflation after the recent CPI figures came out below expectations.
The Dow was up 2.3% on a weekly basis, registering its best performance since March and closing higher for the fifth consecutive day. Technically, buyers will be challenging an important resistance zone that stands between the 34500-34600 levels as a daily close above it is likely to clear the way for another advance in the direction of the 34950 level. Otherwise, the Dow might enter into a consolidation phase in the coming hours. In the meantime, the S&P500 ended the week by adding 2.4% and the Nasdaq composite advanced 3.3%. Both market benchmarks reached their highest intraday levels since April of last year before retreating on Friday. In addition, strong earnings especially from the banking sector helped the market to register a positive performance.
Looking at the week ahead economic calendar, traders will be monitoring the latest inflation figures from both Canada and the UK through the consumer price index releases.
In the U.S., retail sales are expected to have risen from 0.3% to 0.5%, likewise, unemployment claims are due to rise from 237K to 242K. Moreover, investors will keep an eye on building permits and housing starts figures later this week, while in Australia, the focus will be on the latest employment data.
In the FX market, the U.S Dollar faced strong selling pressure as the Dollar index broke below the 100 psychological support reinforcing the bearish outlook for the Greenback against other major currencies in the short term. Many market participants started to think the FED can realize a soft landing following the recent drop in inflation, however, core inflation remains elevated and still away from the FED’s target which can diminish the probability of a potential rate cut later this year. Both the Euro and the British pound were strongly higher against the U.S Dollar reaching highs of 1.1245 and 1.3144 respectively, while the USDJPY pair sell-off drove the pair towards the key support of 137.25 which represents the low of May 18th.
In the commodity market, gold managed to break above the neckline of the inverted head and shoulders bullish reversal pattern mentioned in our previous report, and consequently, prices have reached the first barrier located at the 1957 level. As of now, the yellow metal is likely to start a downside correction due to profit-taking, however, we expect gold to remain well-supported in the near term while prices continue to trade above the 1929 support in the coming days. In extension, a successful breakout above last week’s highs should reinforce the odds of another rally in the direction of the weekly resistance zone located between the 1975 and 1983 levels.
On the other side, WTI crude had a strong week after buyers succeeded to overtake the key resistance of $75.00 a barrel. Prices traded in line with our expectations after reaching an important resistance zone located between the 77.00 and 77.90 levels.
Therefore, we might see a potential downside correction in the near term, however, the bullish momentum remains in place, and we expect oil to find strong support from the 73.25-72.60 zone when reached. On the flip side, a successful breakout above the 77.25 level should expose the next resistance at $77.90 followed by the $79.00 barrier.
Economic Analyst
Amine Hiani