Forex Market Analysis: Global Market Insights: US Dollar, Stocks, and Geopolitical Dynamics
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Forex Market Analysis: Monday 15 Jan 2024
Economic data: Markets closed for Martin Luther King, Jr. Day
Earnings: Markets closed for Martin Luther King, Jr. Day
CURRENCIES:
Event Focus: UK Unemployment and Inflation Data
Major event risk from the UK includes upcoming releases of unemployment and inflation data.
US Market Dynamics: Lower Yields and Rate Cut Forecasts
US dollar maintains its trading range despite declining yields and heightened expectations for rate cuts.
US 2-year yield experiences a six-day decline, with markets predicting nearly 25 basis point cuts in each meeting from March to November.
Note: Potential rate adjustments by the Fed may be limited due to the proximity to the presidential elections.
US Dollar Basket Performance: Trading within Range
The US Dollar Basket, a proxy for USD performance, has been trading within a range for the past two weeks.
The significant resistance at the 103.00 level, coupled with the presence of the 200 and 50-day simple moving averages, limits the dollar’s upside potential.
Challenges for the USD: Declining Yields and Rate Cut Expectations
The USD faces challenges such as decreasing yields, a more imminent prospect of rate cuts, and easing price pressures.
Implied Fed Funds Rate: Market Expectations
Market expectations, as reflected in the implied Fed Funds Rate via the Fed Funds Futures Market, indicate anticipation of future rate cuts.
Despite slightly higher Consumer Price Index (CPI) readings last month, expectations suggest a continued drop in inflation.
USD’s current range-holding is attributed in part to its safe-haven appeal, particularly following joint US and UK strikes on Houthi targets.
Global Economic Outlook: Chinese Q4 GDP Data
Chinese Q4 GDP data is anticipated to provide insights into the global economic outlook.
Safe Haven Appeal of USD: Influenced by Geopolitical Events
USD’s safe-haven appeal is reinforced by geopolitical events, such as joint US and UK strikes on Houthi targets, contributing to its range-holding status.
Gold Performance: Notable Safe Haven Asset
Gold, a significant safe-haven asset, exhibited an increase over the weekend, aligning with USD’s safe-haven appeal.
Key Levels for USD: Resistance at 103.00
The USD faces resistance at the major level of 103.00, with the 200 and 50-day simple moving averages further contributing to this resistance zone.
Factors Influencing USD Range: Safe Haven Status
Despite various challenges, the USD’s ability to maintain its range is influenced by its safe-haven status, particularly in response to recent geopolitical developments.
STOCK MARKET:
Market Recap and Outlook:
Stocks resumed winning streak after a nine-week break to start 2024.
Nasdaq Composite led with a 3% gain; S&P 500 approached a record high.
Microsoft surpassed Apple as the world’s most valuable company.
Upcoming Focus:
In a holiday-shortened week, attention shifts to financial sector results and Wednesday’s retail sales data.
US markets closed Monday for Martin Luther King Jr. Day.
Retail Sales Forecast:
Retail sales expected to rise by 0.4% in December, exceeding the 0.3% gain in November.
Bank of America anticipates “robust” retail sales due to applied seasonal adjustments.
Economic Calendar:
Thursday: Initial jobless claims data.
Friday: University of Michigan’s consumer sentiment report.
Geopolitical Events:
Monday: Iowa caucuses mark the official start of the 2024 US presidential election.
Rising tensions in the Red Sea draw increased investor attention.
Earnings Reports:
Investment banks Goldman Sachs (GS) and Morgan Stanley (MS) set to report.
Focus on the investment banking story and the trajectory after a challenging year.
Inflation Insights:
Last week’s inflation data showed firmer consumer prices but moderated producer prices.
Red Sea-related disruptions noted as an “upside risk” to inflation forecasts.
Fed Rate Cut Expectations:
Investors price in a 77% chance of a 0.25% Fed rate cut in March.
Barclays economists expect incremental cuts starting in March but at a more gradual pace.
Earnings Season Kickoff:
Major money center banks, including JPMorgan, Wells Fargo, Bank of America, and Citi, reported results.
JPMorgan reported a nearly $50 billion record annual profit.
Tech Sector Focus:
The financial sector takes the spotlight initially, but the tech sector’s performance will be closely monitored.
Forward P/E ratio for the Technology sector stands at 27, second highest among S&P 500 sectors.
Magnificent Seven and Nasdaq Influence:
Results from “Magnificent Seven” tech giants, including Meta Platforms, Alphabet, Amazon, and Tesla, will impact the Nasdaq and overall market sentiment.
Negative guidance from tech sector companies above recent averages.
Sector Valuations:
Technology sector’s forward P/E ratio at 27, second only to Real Estate, which traded at 39.
Technology’s performance crucial as it accounts for over 28% of the S&P 500’s market cap.
Fourth Quarter Earnings Season:
The tech trade’s impact on overall market direction will be significant as the earnings season progresses.
Investor Sentiment:
The party for fourth-quarter earnings season begins when reports from the “Magnificent Seven” tech giants start rolling in.
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